by Aaron Levitt | December 31, 2013 11:30 am
When investors tend to focus on the energy sector, they do so from the point of view of scoring some hefty capital gains. Shale superstars like EOG Resources (EOG) haven’t disappointed on that front. As hydraulic fracturing continues to take hold and production here at home continues to rise, shares of EOG stock and its kin have surged to new highs.
That’s all well and good, but investors looking for income and steady dividends from their energy investments are often left out in the cold. That’s because in order to get that rising production, energy companies need to spend major dollar amounts on CAPEX spending. Those big costs often don’t leave much in the way of cash leftover to pay shareholders in the form of dividends.
However, if investors are willing to do some digging, there are plenty of energy stocks — across up- mid- and downstream subsectors — that are paying out yields in excess of 5%.
Here are four companies paying out some of the best yields.
Not that there is anything wrong with Canada’s vast oil wealth, but former Canroy Enerplus Corporation (ERF) has found greener pastures here in the good old U.S. of A. The past year or so has been one of transition, in which ERF has plowed head-first into some of North America’s hottest shale regions, namely the Bakken and Marcellus.
In fact, during the 3rd quarter, ERF managed to see a 20% surge in production from the Bakken alone.
That focus on rising oil production and the shift away from its legacy assets in Canada have helped ERF shares surge 40% this year. Perhaps more importantly, Enerplus is also a dividend machine. Rising cash flows from higher priced WTI crude and natural gas have helped ERF continue its high Canroy-style payments.
ERF currently yields 5.5% and pays its dividend monthly.
Over the longer term, Enerplus’s switch towards the Bakken should continue to pay benefits for investors as production in the region is still surging. As we begin using that crude for both refining and exports, it should help ERF’s strengthen cash flows and that high dividend.
Speaking of those end-users, refiner Northern Tier Energy LP (NTI) might be an interesting high yielding pick.
The key for NTI is that it is a variable-distribution master limited partnership. Essentially, NTI plans on distributing all of its cash flows back to investors as dividends. That has resulted in some huge swings in its underlying yield. Just a few quarters ago, NTI was yielding a monster 19%.
However, as crack spreads began to dwindle, so did NTI’s yield. Today, Northern Tier pays out 5.1% in distributions.
Yet, NTI’s refinery is located in one of the best areas to take advantage of cheap WTI and Canadian crude. That means as crack spreads begin to widen — which they currently are — NTI will be able to increase its margins on the products it refines. All in all, that could send NTI’s dividend higher in the future.
While it most likely won’t yield 19% again anytime soon, NTI’s current 5.1% dividend yield is still pretty juicy and makes the MLP an interesting choice.
The name of game for Baytex Energy (BTE) is heavy oil. The firm is a monster player in Canada’s vast oil sands — roughly 81% of its production and revenue comes from Alberta’s bitumen. Given that position, BTE has been forced to expect generalized lower prices for its crude as logistical bottlenecks continue plague the oil sands.
However, with new pipelines set to begin shipping Canadian crude west towards Asia, BTE could finally realize higher prices for its top quality assets in the region.
While they wait for these pipelines and ports to be built, investors are treated to a monthly 6.1% yield. Backing that yield are Batex’s strong cash flows and more traditional oil plays as well as new acreage in the Bakken.
Now is a great time to buy BTE stock. Shares of the heavy oil producer have fallen by about 10% this year and stand out as a bargain versus some of its oil sands peers like Suncor (SU).
Investors looking for high “oily” yields may want to take a trip south — way south — down to Colombia. The rout in emerging markets has left many stocks within Latin America reeling and could result in huge bargains for long-term investors.
One such bargain is energy producer Ecopetrol (EC).
The company operates an integrated energy producer in the fast growing emerging market nation, with assets spanning up- mid- and downstream operations. However, like many of the majors, EC has been fraught with low production and dwindling reserves for the past few quarters.
But there’s hope on the horizon for EC and its shareholders.
The firm has recently made some commercially viable discoveries with partner Talisman (TLM) in Colombia. Those new fields should help begin to turn the tide for EC’s production/reserve woes. At the same time, Ecopetrol has unveiled a pretty expansive CAPEX budget with the focus on exploring for new reserves.
Meanwhile, EC shares yield a very juicy 7.2% yield. Investors buying in at current prices are being paid nicely to wait for the turnaround.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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