3 High-Yield Dividend Plays in Natural Gas

Karin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In my never-ending quest for more and better dividend stocks, today I am exploring the natural gas sector. Natural gas has been a hot topic of discussion, as have dividend stocks, so here I am combining them into one analysis.

President Obama’s re-election bodes well for the natural gas industry, as he has supported the industry and will likely continue to do so in his second term. Natural gas companies are one of the energy categories permitted to form Master Limited Partnerships, which are terrific vehicles for income and tax-deferral as well. Thus their stocks are excellent choices for a dividend income-generating portfolio.

BreitBurn Energy Partners (NASDAQ: BBEP) focuses on the acquisition, exploitation, and development of oil and gas properties. The stock is currently trading at $18 per share, and it yields a hefty 10.9%. The company’s 5-year dividend yield average is 13.6%. Shares are trading at 10% off their 52-week high; the 3-year Dividend Growth Rate (DGR) is 6.7%, and the 3-year total return is 91.3%. Although BreitBurn does not have a lengthy history of paying dividends, it is a company that has grown its distributions for 9 consecutive quarters, providing excellent income for its investors.

The next two companies are both a little less risky than BreitBurn,and both have a history of paying and raising dividends for over 10 years, with lower yields.

Plains All American Pipeline (NYSE: PAA) is a natural gas pipeline and storage play, a great sector for established companies due to the incredibly high barriers to entry. PAA manages 18,000 miles of pipeline and has 120 million barrels’ worth of storage capacity at its plants. The stock is currently trading at $45 per share, and it yields 4.9%. The company’s 5-year dividend yield average is 6.8%. Shares are trading at a 4% discount to the company’s 52-week high; the 3-year DGR is 5.2%, and the 3-year total return is 98.9%. This company has paid and raised dividends for 12 years.

Atmos Energy (NYSE: ATO) engages in the distribution, transmission and storage of natural gas in the United States. The stock is currently trading at $33 and yields 4.2%. The company’s 5-year average dividend yield is 4.6%. Shares are trading about 10% off their 52-week high; the company’s 3-year DGR is 1.5%, and its 3-year total return is 30.8%. This company has paid and raised dividends for 24 years.

Of the three companies described here, Atmos is the most conservative, in terms of both yield and dividend history, but its 4.2% yield is certainly nothing to be ashamed of. Plains All American is in the middle in terms of yield and dividend history, and BreitBurn is definitely the riskiest, with a commensurately attractive reward.

Perhaps all three have a place in your dividend portfolio.


khern0203 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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