Oil Is in a Hot Spot: 9 Ways to Generate High Yields in Energy

The investment case for oil and gas stocks, based on both low valuations and above-average yields, has been strong, according to several leading financial experts and contributors to MoneyShow.com. The past weekend's attack on Saudi refineries adds one more variable to bolster prices. Here's a look at 9 income-oriented ideas in the energy space. Chris Preston, Cabot Wealth Network A huge new market in American natural gas exports is just now developing. U.S. natural gas production exploded during the energy boom and there was more of the stuff than we could use. We couldn't export it because we didn't have the huge fractionalization facilities necessary to convert it to natural gas liquid (NGL) and ship our cheap gas overseas were it fetches much higher prices, until now. Cheniere Energy Partners is an MLP that operates Sabine Pass, this country's first natural gas export facility. Other facilities will also come on line in the years ahead, but Cheniere was the first to the party. The partnership has secured long-term delivery contracts that should provide a stable income for the long haul. Earnings have exploded as export volumes continue to soar. It also has more capacity coming on line next year. Earnings are expected to grow 45% per year over the next five years. Revenues have soared over the last three years but the stock still sells at a price/earnings multiple below that of the overall market and currently pays a 5.5% yield. Enterprise Product Partners is one of the largest midstream energy companies in the country with a vast portfolio of service assets connected to the heart of American energy production. U.S. oil and gas production is at all-time record levels. Enterprise has little exposure to commodity prices but instead collects fees for the transport and storage of all this oil and gas sloshing around the country. And business is booming. Opportunities for growth abound. EPD has $5 billion in projects under construction and between $5 billion and $10 billion in development. That should provide ample growth to go with the 6% yield. It's worth noting that this is one of the best energy companies in the business. It has a pristine balance sheet with investment-grade ratings and only a 60% ratio that enables the company to reinvest earnings in new and existing projects at a lower cost basis than its peers. It has also raised the dividend for 60 straight quarters and has a phenomenal track record of performance over the last 20 years. Despite the fact that earnings have grown by an average of 11% per year over the last five years, the stock is still 30% below the 2014 high. Brett Owens, Contrarian Outlook If you want to stay put and collect cash, these two highly rated stocks are among the dividend payers that you should consider right now. Exxon Mobil just renewed its Dividend Aristocrat membership card in April when it announced its 37th consecutive annual dividend increase. The stock currently yields 4.8%. The company also handled the financial crisis better than many, dipping only about half as much as the broader market from 2007-09. Exxon Mobil still is the alpha titan of energy. It's the largest energy stock by market cap. It's an integrated oil-and-gas giant that handles every step of the process, from exploration to your local Exxon gas station. And because its operations are so widespread, it's not as sensitive to the rise and fall of oil as many pure-play exploration-and-production companies. The company also laid out a plan earlier this year to more than double profits by 2025. Wall Street didn't take it to heart at the time, but then, how many analysts are pricing the stock based on what the company might do in 2025? Chevron , which has long been energy's No. 2 to Exxon, is also a Dividend Aristocrat -- one that has racked up 32 consecutive years of higher payouts thanks to a 6% bump announced in January. The stock currently yields 3.9%. It's also a fortuitous loser. Earlier this year, it bid $32 billion to snap up driller Anadarko Petroleum, which accepted -- but left Chevron at the altar after Occidental Petroleum stepped in with a $38 billion partially financed by Berkshire Hathaway , whose CEO is Warren Buffett. Chevron refused to blow up its balance sheet just to counter the bid. It showed discipline, and it conserved cash -- in fact, it even earned a $1 billion breakup fee. The payout remains healthy, and likely to keep ramping up for years to come. That said, while Chevron and Exxon are both integrated majors whose varying businesses make them less sensitive to commodity prices, they still can suffer when oil does. So while I expect them to hold up better than most in times of market turmoil, energy prices are a wild card to keep watch over. Mark Skousen, Five Star Trader Berry Petroleum Corporation is an independent oil developer and producer based in Dallas. It is a promising upstream oil producer that just appeared on our new radar. The company's properties are located in the San Joaquin and Ventura basins, California; Uinta basin, Utah; and Piceance basin, Colorado. As of December 31, 2018, it had a total of 3,743 net-producing wells. After losing money for years, it is now producing profits. The stock is is still dirt cheap, selling for less than $10, still below its book value of $11.76. It is selling at only 7.5 times expected earnings this year. It has a price/earnings to growth (PEG) ratio of only 0.45 (anything less than 1 is considered excellent). If you buy it now, you also will collect its 12 cent quarterly dividend that currently offers a 5% yield. The stock has had huge insider buying by a dozen company officers, including the CEO Arthur T. Smith. Let's join him and buy Berry Petroleum Corp. and set a protective stop of $7.70. Note: This is a small-cap stock valued at only $796 million. It is a turnaround story -- the stock was selling for $17 a share a year ago. Expect volatility. Do not chase this stock. Jack Adamo, Insiders Plus Some very smart money has been recommending blue-chip integrated oil companies with good dividends and good balance sheets, as well as oil & gas MLPs. Although I suspect there's still downside in the sector -- especially with a recession nearby -- I'm willing to weather the storm. I'm going to start us off with a small position in Royal Dutch Shell, Class B in our high income portfolio -- despite recession risk -- because I think the dividends will be worth it. The stock yields 6.7% at its current price. It has held its dividend steady for the last five years while it grew its operations nicely. In the last 10 years the stock has doubled and the dividend has nearly doubled too. It's trading at 11-times trailing earnings. The stock is down 18% from its high this year, so there could be some tax selling in November and early December, so you might want to take a smaller position and/or use a stop loss order to limit a near-term slump. Bryan Perry, Cash Machine Carl Icahn has had a hot hand; his holdings within Icahn Enterprises LP are positioned in several companies that are leveraged to the current economy and one of them, in particular offers a high yield coupled with significant capital appreciation potential. Within the $8.2-plus billion in assets that make up Icahn Enterprises, roughly $2.2 billion is invested in CVR Energy , a key player in the oil refining business with operations in nitrogen fertilizer. Refiners are amid a boom with a big spread between the price of crude and the selling price of refined products like gasoline, diesel and jet fuel. The spread is increasing profits dramatically. Icahn Enterprises owns 82% of CVR Energy, along with $6.0 billion of other assets. I want to be able to provide a pure play on refining that carries with it a super dividend yield of 7.3%. What attracts me back into this name, at this time, is the prospect of the company being sold per its May 21 announcement that it was exploring a transaction. This is what Carl Icahn does best, taking a majority stake, positioning the company for sale and getting a premium for the business. CEO Dave Lamp has sold the past two companies he oversaw and is poised to deliver another big winner for investors. John Buckingham, The Prudent Speculator Halliburton is one of the world's largest providers of products and services to the energy sector. The company serves the upstream oil and gas industry throughout the life cycle of the reservoir, from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production. The shares have fallen about 50% over the last year, far worse than the respective drops of 20% or so in the price of natural gas and crude oil. Despite the challenging operational environment in North America, the company continues to build on its momentum internationally, with second-quarter EPS beating forecasts by 17%. We appreciate management's capital discipline mentality, but also like that the company has invested in key drilling and exploration technologies. Even though Halliburton and its competitors will continue to face numerous near-term challenges, we still think that long-term exposure to the energy industry will prove profitable, especially when shares of a best-of-breed company can be purchased at a discount. The company has meaningful leverage to the up cycle and could generate free cash flow of over $1 billion in the coming year, despite the tough operating environment. Meanwhile, Halliburton shares now carry a dividend yield of 3.6%. Crista Huff, Cabot Undervalued Stocks Advisor Total S.A. -- with a yield of 5.6% -- is a French multinational integrated energy company that produces and markets fuels, natural gas and low-carbon electricity, operating in over 130 countries. Total is the second-largest private global liquified natural gas (LNG) player, with a worldwide market share of 10%. Last week, a final investment decision (FID) was approved for Arctic LNG 2 in Russia. Total owns a 21.6% economic interest in the project. Total's newly-won $13 billion LNG export project in Papua New Guinea hit a snag in August when a new government regime decided to reevaluate whether they would honor the project, which had been approved in April by the former government regime. The new government just recently gave the go-ahead on the project. Exxon and Oil Search Ltd. are Total's partners in the venture. Total is an undervalued, large-cap growth & income stock with a large dividend yield. The market expects the stock's EPS to fall 9.7% in 2019, then to rise 19.3% in 2020. The current P/E is 11.1. The company maintains a consistently low debt ratio. The stock recently bottomed and is now rising. I'm moving the stock from Hold to a Buy recommendation, with an expectation that the price could reach $56-$57 this year.

Oil Is in a Hot Spot: 9 Ways to Generate High Yields in Energy

This weekend's attack on Saudi refineries adds one more variable to bolster prices.

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