by Aaron Levitt | February 3, 2014 10:50 am
Due to generally high CAPEX spending requirements, the energy sector usually isn’t a fruitful hunting ground for dividend stocks. Dividends — minus the super majors like Chevron (CVX) or ConocoPhillips (COP) — are usually on the paltry side. It just takes a lot of dough to produce energy these days.
In fact, the broad Energy Select Sector SPDR (XLE) only pays a measly 1.73% in dividends. That’s less than the S&P 500 and substantially less than treasury bonds.
However, those investors looking for good dividend stocks shouldn’t give up all hope of finding 3%-plus payouts in the energy patch. There are some niche players that offer some pretty high income potential. Many aren’t well known, but they could help guide your portfolio to higher returns in the New Year.
Here’s five of the “odd-ball” niche players that make solid dividend stocks.
Dividend Yield: 8.7%
NGP Capital Resources (NGPC) is an interesting pick in the oil patch.
The firm doesn’t actually drill or produce energy, but provides capital — via royalty interests, senior and subordinate debt as well as equity stakes — to other smaller energy producers and midstream firms. NGPC just sits back and then collects the interest payments, dividends and royalties. No heavy lifting required.
And since it’s structured as a taxed advantaged Business Development Company (BDCs), those payments are kicked back to shareholders via a hefty 8.4% dividend yield — a scorching yield among any group of dividend stocks.
Essentially, NGPC allows regular retail investors to play the elusive world of venture capital or private equity without multi-million dollar minimum investments. On that front, NGPC’s management has been pretty successful — owning firms like Pioneer Natural Resources (PXD) or Energy Transfer Partners (ETP) before they were household names.
Ultimately, NGPC stock allows investors to participate in the earliest stage of energy production without wildcatting a well in their own backyard.
Dividend Yield: 3%
After an E&P firm pulls oil out of the ground it needs to be stored before it can be refined. Likewise, after it’s turned into gasoline, jet fuel and other refined products, storage is necessary.
Filling the two parking places on the energy value chain is Oiltanking Partners (OILT). It earns steady and stable fees from energy producers to store their petroleum until its needed, making it one of our oddball dividend stocks for the energy sector.
And like their name suggests, OILT owns plenty of storage tanks and associated terminal assets.
OILT’s general partner — Oiltanking Group — is the world’s second-largest independent tank storage provider for petroleum products, chemicals and gases. That firm controls nearly 72 different terminals with about 121 million barrels of storage capacity throughout the world. OILT has benefited from that relationship through hefty asset “drop-downs.”
Those drop-downs have strengthened OILT’s already rich cash flows. This past quarter, Oiltanking Partners increased its quarterly payout by 5.6% versus the prior quarter’s distribution. OILT currently yield 3%, proving that there are riches in niches.
Dividend Yield: 5.5%
The secret to a big energy dividend? Sand. That’s right, boring sand.
Sand is the main ingredient in “proppant,” which is injected along with various fluids into a well in order to hold open the fractures so hydrocarbons can flow properly.
And as producers continue to frack the various shale formations in the U.S., demand for frac-sand is skyrocketing. Since 2011, demand for frac-sand has surged nearly 25% and some analysts estimate that it will grow another 20% over the next two years.
That’s where the next of our dividend stocks, Hi-Crush Partners (HCLP), comes in.
HCLP is premier and “pure-play” producer of high quality monocrystalline sand via its 561-acre facility in Wisconsin. That high-quality sand continues to be in-demand from various oil service heavyweights like Baker Hughes (BHI).
Overall, that has helped HCLP units surge over the last few years and return a substantial 5.5% in dividends back to shareholders. And with frac-sand demand not abating, investors in HCLP could in store for more juicy payouts.
Dividend Yield: 2.6%
While a water utility may seem like an odd choice for a list of high-yielding energy stocks, the truth is Aqua America (WTR) is very much becoming a shale superstar in its own right.
Aside from sand, fracking a well takes a lot of water — millions of gallons, in fact. All of which must be transported to and away from the drilling site. Not to mention be cleaned before being returned aquifers and waterways. That’s where WTR comes in.
Last year, WTR partnered with Penn Virginia (PVA) to build a pipeline that will supply fresh water to energy firms’ drill sites in the Marcellus shale. Within two months of completion, the pipeline had already eliminated more than 4,000 water truck trips over rural roadways. WTR has already begun plans to expand that network outwards in the rest of the Marcellus to take advantage of rising drilling activity in the shale formation.
Providing water for fracking has helped Aqua America diversify its portfolio outside of the core business of regulated water services. That has helped elevate it among dividend stocks as well. WTR’s dividend is now a market-beating 2.6%.
Dividend Yield: 6.7%
Offshore drilling presents a unique problem. How do you get that oil production from the platform back to shore? If your oil platform is close to shore and in shallow water, you can tap into the Gulf of Mexico’s vast undersea pipeline infrastructure. Unfortunately, that isn’t an option when you’re are miles and miles away and in deep water.
That’s where KNOT Offshore Partners LP (KNOP). The company hammers out a good living owning and operating shuttle tankers. These shuttle tankers move crude oil and condensate from offshore oil rigs to onshore terminals and refineries. The boring niche is pretty stable and isn’t tied the rise and fall of the Baltic Dry Index or other volatile shipping metrics.
That stability has helped KNOP deliver some pretty strong cash flows in its short history.
And while it’s a relatively new firm, KNOP’s parent company has a long history of operating vessels of all sizes and has plans to continue dropping down shuttle tankers into the MLP. Overall, that should strengthen KNOP’s already big yield of 6.7% and keep it near the top of energy dividend stocks.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
Source URL: http://investorplace.com/2014/02/dividend-stocks-wtr-knop-hclp-oilt-ngcp/
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