5 Biggest Dividends in Energy
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Rising global demand for oil, political unrest in the Middle East and the industrialization of growing economies in Asia fuel the increasing cost of energy and energy stocks are especially attractive as a result. High yielding dividends sweeten the deal and make some energy stocks even more lucrative by offering gains both in the form of growth and cash that can be reinvested or pocketed. The following six companies operate in the high demand energy sector and offer a dual benefit in the form of dividends and stock value appreciation. Which stocks will remain profitable in 2012?
Seadrill (NYSE: SDRL) is off to a good three year run that could increase its pace after the announcement of its IPO on the Brazilian exchange in February. The offshore driller has seen its shares move from $7 to $35 since the beginning of 2009 and its IPO could produce $700 million to $1 billion that will allow the company to expand its operations and compete against its large competition. Seadrill has paid out a steadily rising quarterly dividend that moved from $0.67 to $0.76 per share over the last year and pays out at a yield of over 8%; making it a one two punch for investors in 2012 and beyond. I see this as a strong buy that will produce dual gains for the next few years, at the very least.
Sabine Royalty Trust (NYSE: SBR) has doubled in value since March of 2009, moving from $30 to $61 per share during three straight years of profitability as it maintains oil interests in six states in the United States that are undeveloped to date. The value of these properties is set to skyrocket in the event of a global oil crisis which makes this a good stock to take a preemptive position in. Its quarterly dividends fluctuate between $0.22 and $0.36 and provide an average yield of 7%. Its upward trend on the market and the decent yield on its dividends make this stock another buy in 2012.
MVO Oil Trust (NYSE: MVO) has quadrupled in value since 2009, moving from $10 to $40 per share and operates in a fashion very similar to how Sabine Royalty Trust does. The difference is that MVO does not own any properties and exists as a trust for its oil and natural gas partner, MV Partners. MVO Oil Trust’s dividends flux between $0.82 per share to $1.03 and produce a yield of 8%, which makes this trust as worthy of a buy in 2012 as Seadrill and Sabine Royalty Trust.
The Whiting USA Trust (NYSE: WHX) is the winner of the entire group with an extremely stable stock price and phenomenal dividend yield of 16% and payout ratio of 0.89. Its stock has fluctuated over the last three years between $17 and $24 per share and remains extremely stable while paying out its consistently high yielding dividends. I don’t expect the stock value to soar but the 16% yield on its dividends is what makes this one a winner.
Transocean (NYSE: RIG) owns the largest deep water fleet and competes with Seadrill in a market that will continue to become more lucrative as resources inland become scarce and tensions rise in the Middle East. While its dividends provide a solid yield of 7%, that yield is quickly negated by the volatility of its stock, which has fluctuated over the last three years to as high as $90 per share and as low as $45, where it sits currently. Transocean is currently fighting an appeal against a citation it received due to its involvement in the Deep Horizon oil spill and an unfavorable result won’t help this stock. I suggest waiting this one out.
Ferrellgas (NYSE: FGP) is the largest propane distributor in the United States with footholds in all 50 States and US territories. Its shrinking profits in 2009 and 2010 followed by a $43 million loss in 2011 have me believing that its current dividends of $0.50 per share are about to drop and it will no longer offer a generous yield over 11% as it has been in recent years. Its stock value has reflected its revenues— shedding $10 per share from $28 to sit at $18 now. I would wait for Ferrellgas to turn things around before I return to this stock.
Seadrill, MVO Oil Trust and Whiting USA are my favorites in this group and for completely different reasons. Seadrill and MVO Oil Trust both show the potential for steady and explosive growth in addition to decent dividends that give yields around 7-8% while Whiting shows little chance of making a significant move in either direction as it provides an amazing yield of 16% on its dividend. Sabine Royalty Trust is another stock with the potential for explosive growth and is backed by a decent dividend, but I feel much more favorably toward the others, which show the potential for much more rapid growth.
Transocean’s legal troubles make me take caution because its stock is already on a slippery slope and any gains that are produced through dividends will only be lost in its declining stock value. Ferrellgas has found itself in a position where it struggles to stay out of the red and is shedding stock value, which means its dividends are about to shrink with its valuation.
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