Oil’s Going Higher… and Taking These 3 Stocks with It
A rare snowstorm ripped across Texas over this weekend. But snowplows in Texas are about as rare as white sand beaches in Ohio. So, local governments had no choice but to close their roads until the ice melts.
On top of that, 4 million people across the state lost power. That includes residents as well as the grocery stores, restaurants, and oil refineries that they can't drive to.
My heart goes out to those people and businesses who have to deal with this freak storm and its aftermath on top of a pandemic.
The temperatures will rise again soon enough, but its effects will be longer lasting. In fact, those will soon be felt far outside the borders of the Lone Star state.
That's because Texas produces roughly 38% of the US oil supply. So when they restrict drilling, oil supply falls… and this will add fuel to oil’s latest bull run.
This Profit Pipeline Is Back in Business
The oil market has come a long way since it turned negative last April. Now, prices are back above their pre-pandemic high:
One pipeline benefited big from the oil industry coming back online. Back in September 2020, I recommended to my paid-up subscribers that they add Enterprise Products Partners (EPD) to their portfolios.
This +10% yielder turned out to be a great way to play the rebound in oil prices. EPD rose 40% in the three months that followed.
I recommended bagging that big, fast gain back in December. But since pipelines tend to offer fat yields, it's always a good idea to think about adding exposure in your income portfolio.
With oil prices about to get another boost, I recommend getting your shopping list ready.
And if you don't have one, no worries. I am going to share mine with you.
3 Pipelines with Huge (and Safe) Dividends
Near the top of my buy list is Magellan Midstream Partners (MMP). The company operates pipelines in the central and eastern United States.
What puts MMP over the top is its 9.9% dividend yield.
And while the three-year average payout ratio is a little high at 85%, the company’s solid free cash flow growth and balance sheet help bolster the case for the payout.
It’s also a key reason why MMP scored a respectable 84/100 on my Dividend Sustainability Index (DSI).
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I use my DSI to gauge whether a dividend is safe. It looks at a handful of dividend-related metrics to test whether a company can maintain its payout. One of the most important data points is the ratio of a company’s dividend paid to earnings. If a company pays $1 in dividend per year and earns $2 in profit, it has a payout ratio of 50% ($1 in dividends / $2 in profit). |
Next on my list is Phillips 66 Partners LP (PSXP). As the name implies, the company is the pipeline subsidiary of oil and gas giant Phillips 66. But unlike the parent company, PSXP pays an eye-popping 13.6% dividend yield.
And according to my DSI, this yield looks safe. Free cash flow has been rocky, but the three-year average payout ratio of 78% and strong balance sheet earned the company a DSI score of 88/100.
Last, we have Keyera Corp. (KEYUF). The Canadian midstream company currently sports a 7.5% dividend yield. And with a three-year average payout ratio of 79%, the payout looks safe and reliable. My DSI agrees, as it gave the company a score of 85/100.
Any of these three names are good buys now, and even better buys on pullbacks.
If you're doing this on your own, keep your position sizes manageable and consider keeping mental or actual stop-losses in place. Those will help you ride out any volatility with some added peace of mind.
If you'd prefer to get my timely buy alerts—complete with instructions on when to buy, what price to pay, and when to grab gains—click this link here and fill out the short form at the bottom of the page.
Robert Ross
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