One of the sectors on which I focus for Real Money is energy. Obviously that comes in all forms. For investors seeking plays on clean energy, the following four U.S.-listed clean energy exchange-traded funds have market caps in excess of $1 billion: iShares Global Clean Energy (ICLN) ; Invesco WilderHill Clean Energy (PBW) ; First Trust EIP Carbon Impact (ECLN) ; and ALPS Clean Energy (ACES) .
Also, there are a plethora of industry specific ETFs -- wind, solar -- not to mention thousands of individual company equities around the globe to play specific subsectors. So, if that's your bag, have at it.
For those of us who prioritize cash flows over worldviews, however, there is still an even more lucrative way to profit from energy. Yes, the oil majors. Every one of these companies pays a dividend -- it would be difficult to find an oil major that is not paying at least 3-times its national average. Even after its recent run of strong performance (as a long-term shareholder I say "finally," although Exxon (XOM) shares are in the red today) Exxon Mobil is yielding just over 7% compared with an almost incomprehensible current S&P 500 yield of 1.49%.
So, there is still strong demand for hydrocarbons in the world, and if vaccines lead to a global economic recovery, demand for hydrocarbons will surge. (I believe that's a big if, especially with so many variants circulating.) It's not all "black," either. Any kid on the internet could tell you that the amount of carbon in one molecule of natural gas (CH4) is much less than in a molecule of crude oil (which can take many forms, but the standard calculation is 6:1 to convert the carbon density of to oil to gas) and thus the carbon density is lower.
Oil prices have risen sharply thus far in 2021, with WTI crude quoted at $58.44 as of this writing and Brent crude back in the $60 area, at $61.44. With Saudi Arabia showing some rare restraint on the production side, and the completely incomprehensible war against domestic oil and gas jobs undertaken by the Biden administration and its private jet-loving climate czar, John Kerry, the situation on the supply side will not improve. Oil prices were too low for most of 2020 to justify incremental capital expenditure on E&P projects and every one of the oil majors cut back on spending.
So, how to play it? I already own XOM, and that company's financial engineering to maintain its $0.87 quarterly dividend has been entirely appropriate, and, in my opinion, a job saver for CEO Darren Woods. But hydrocarbons are a global industry and, as an investor, you have to be able to read the tea leaves. Going forward, it is going to be increasingly difficult to explore and produce oil and natural gas, which makes no sense, since gas is so much less carbon-dense than oil. I don't make these decisions, I just analyze them.
So, then a perfect play would be a company located in a "woke" geography that has assets outside the U.S. and Western Europe and strong exposure to natural gas as opposed to crude oil. Thus competition in home markets are limited by governmental restrictions, and exploration in emerging economies like in Africa and Southeast Asia is actually still encouraged by local governments, thereby helping project economics.
That's a long preamble, but all of that together adds up to stock I have been buying this week: Eni SpA (ENI). The Italian energy giant has a strong mix of natural gas to oil -- almost one-to-one in the third quarter, using the 6:1 conversion -- and mentioned the following geographies in the production section of its most recent earnings press release, Egypt, Congo, Kazakhstan, Algeria and Nigeria. That's what you want. Production in places where hydrocarbon production is welcomed, not demonized.
Finally, the dividend. That is a very long long story for many European companies, with semi-annual payments as opposed to the U.S.' quarterly payouts. ENI's interim dividend of $0.178, paid in October, was a huge decline from the 2019 interim dividend of $0.674. But as I stated before, I believe the bottom has been reached for global hydrocarbon markets. ENI's end-of-year payment of $0.33 will be made in May 2021, but as far as 2021's interim payment -- it all depends on the price of oil. It'a a very complex calculation. Also, ENI management has noted that stock buybacks would begin at Brent oil price of $61 (where we are now) and accelerate once the $65 threshold is hit. So ENI shareholders benefit from the economic tailwinds of higher oil and gas pricing.
So, bottom line, ENI will reward its shareholders. To become one, you would have to believe the hydrocarbon pricing will improve in 2021, which of course would send additional profits to ENI's bottom line. I absolutely do. So, I bought the stock. Abbondanza! ENI is a good long-term hold for income-oriented investors.