3 Oil And Gas Stocks To Consider, 2 to Avoid
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A good income investment strategy requires taking diversified positions in stocks that are subject to the least amount of risks that are present in their respective markets. For the energy sector, the Middle East will play a huge role in the near future and the companies that are not tied to the Middle East will be poised for success if current tensions escalate. Taking a preemptive position in companies that are able to successfully operate outside of the Middle East right now will ensure returns even if the political climate in that part of the world cools down. Let's examine the following stocks to see which are worthy of consideration and provide solid yields, making them the perfect addition to a diversified income investment strategy that utilizes dividends to compound returns by reinvesting in a stock to strengthen an investor's position without any additional out of pocket cost.
YPF Sociedad Anonima (NYSE: YPF) has operations in Spain and in Argentina, but has a greater focus on Latin American interests as the largest private energy company in South America. Its profits have soared over the last three years, growing from $874 million in 2008 to nearly $1.5 billion in 2010. Its stock value has fluctuated within a $10 range over the last three years and is not expected to make any sharp moves in either direction. The value of this stock comes purely through its dividend, which last paid out at $1.67 per share to generate a yield of over 9%.
I think that YPF Sociedad Anonima has a distinct advantage not only due to its location but the fact that it produces alternative forms of energy in addition to its oil and natural gas. It creates over a million barrels of hydrocarbon oil equivalent each day. As more consumers make moves toward alternative energy, this company will realize even more value, making it a great long term buy that already creates a solid yield of 9% while presenting the potential for growth.
The Sinopec Shanghai Petrochemical Company (NYSE: SHI) is a Chinese government controlled petrochemical company that has undergone a turnaround back toward profitability after losses of $909 million in 2008. It posted a profit of $424 million in 2010, showing that it is on the right track. Its stock has not recovered its value yet, however and its dividend is extremely unpredictable, paying out only four times in the last five years with payouts ranging from $0.39 per share to $1.37. This stock is too unpredictable for me to take a position in and I believe there are many more solid options available.
Sunoco Logistics Partners (NYSE: SXL) owns and operates a diverse network of pipelines and terminals that deliver refined oil products from refineries to distributors. Its stock has grown from $17 to $37 over the past three years and it has profited near or in excess of $200 million per year for its last three years. Its dividend has increased with each payout over the last year and the stock underwent a three to one split in December. It currently $0.42 per share at a projected yield of over 4% and its growth potential makes it attractive in ways that YPF Sociedad Anonima is not by producing a steady and consistent gain in value each year. I think that Sunoco Logistics Partners is a great buy for its growth alone and the dividend is just an added benefit that will allow you to strengthen your position here through reinvestment.
ONEOK Partners (NYSE: OKS) owns the pipeline network that transports around 20% of Canada's exported natural gas to the United States. It consistently profits over $300 million per year and its stock value has soared over the last three years from $19 per share to $56. Like Sunoco Logistics Partners, ONEOK Partners underwent a split last year and has increased its dividend each quarter by a penny. Its last payout was at $0.58 per share and its current projected yield is over 4%. I believe that this stock is a buy for the same reasons I cited for Sunoco Logistics Partners- steady and consistent growth with the added benefit of a dividend.
Williams Partners (NYSE: WPZ) owns a 49% interest in the Gulfstream pipeline and owns both the Northwest and Transco pipelines, making it one of the largest midstream natural gas operations in the United States. It has profited over $1 billion for three consecutive years and its stock made an explosive run from $10 per share to $60 over the last three years. Its last dividend payout was at $0.76 per share, up from $0.71 four quarters ago and producing a 5% yield. Like Sunoco Logistics Partners and ONEOK Partners, I believe that Williams Partners combines a solid dividend with consistent growth, making it a winner on two levels.
YPF Sociedad Anonima pays the highest yield of the group but does not share the same growth rate that Sunoco Logistics Partners, ONEOK Partners or Williams Partners do, and I am in favor of the dual benefits offered by these three. The Sinopec Shanghai Petrochemical Company may be positioned for a recovery, but its sporadic history makes me wonder if it will gain enough momentum to return to its former glory and if it will pay out a dividend in 2012.
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