Play Energy With FMO for Its 7.2% Dividend Yield

Advertisement

The Federal Reserve has spoken.  Sort of.  As I predicted, the nation’s central bank’s statement released last Wednesday afternoon dropped any reference to being “patient” before raising interest rates.

Federal Reserve Operation Twist

However, the Fed also said any rate hike was “unlikely” at the Federal Open Market Committee meeting in April, effectively putting off action until at least June.

What’s more, the Fed bought itself more time by asserting that the first rate increase would come when the FOMC “has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.

In short, Janet Yellen and company aren’t ready to rock the boat just yet, which is precisely the news that equity bulls were hoping to hear.  The “surprise” rally I was looking for is now underway.

How far will the rally carry?

The powerful liftoff (with breadth and volume comparable to what we saw at the January 16 pivot) during the middle of last week implies that the headline U.S. stock indexes can weave their way upward for another four to six weeks before we need worry about the next meaningful pullback.  I expect the S&P 500 to breach 2150 before then and perhaps shoot a bit higher.

How high will largely depend on the behavior of the energy sector — a drag on the market so far this year.

As an energy investor myself, I’m not thrilled with the recent breakdown in West Texas crude below its January lows.  On the other hand, I find it encouraging that Baker Hughes’ weekly count of U.S. oil rigs has plummeted 46% from the October 2014 peak — a decline, in percentage terms, approaching the rout of late 2008 and early 2009.

With such a steep drop in the rig count, domestic oil production should top out by the end of the second quarter and then start to recede.  Oil prices would likely begin to rise in a sustainable fashion soon after.

Until we see a little more stabilization in crude prices, I advise you to focus most of your new energy money on infrastructure names, such as pipeline partnerships.  Fiduciary/Claymore MLP Opportunity Fund (NYSE:FMO), a closed-end fund with an excellent long-term record, is yielding a generous 7.2% thought its quarterly distributions.

Tax reporting is much more simple with a closed-end fund than with individual master limited partnerships, too. You receive an ordinary Form 1099 listing your dividends (last year, 73% of the fund’s distributions were treated as “qualified” dividends and 27% as a tax-deferred return of capital).  You can also stick FMO in your retirement account without fear of generating Unrelated Business Taxable Income.

Definitely buy FMO, and we’ll track the fund for you.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won nine Best Financial Advisory awards from the Specialized Information Publishers Foundation.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/the-fed-rates-energy-fmo/.

©2024 InvestorPlace Media, LLC