During the financial crisis, crude oil prices collapsed from almost $150 to $40. The drastic fall was largely due to pessimistic feelings about economic growth and deflation expectations. Now, we're getting out of recession, and oil prices are catching up. The Fed’s printing presses engineered a turnaround in the economy, and deflation expectations are gradually replaced with runaway inflation expectations. Legendary investors George Soros and Jim Rogers are among the several hedge fund managers who are bullish about commodities. John Paulson, David Einhorn and Dan Loeb have gold as the largest position in their portfolios. T. Boone Pickens has been investing in energy stocks. Considering some investors would be reluctant to invest in gold through ETFs such as GLD or GDX, Insider Monkey focused on energy stocks with high dividends.
Here are the top five energy dividend stocks with a minimum market capitalization of $1 billion and a dividend yield of at least 3%.
1. PetroChina Company Limited (NYSE:PTR)
With a market capitalization of $260 billion, PetroChina is at the top of our list. The company has a regular dividend policy and last year's dividend yield was 3%. Its global competitors, such Royal Dutch Shell (NYSE:RDS.A), British Petrolum (NYSE:BP), Chevron Corporation (NYSE:CVX) and Exxon Mobil (NYSE:XOM), are competing fiercely. Meanwhile, PetroChina has an almost monopolistic position in China. In the last 10 years, the stock price increased 10-fold, from $15 in 2001 to $150 in 2010. That's a 1000% return within the last 10 years excluding dividends.
2. TOTAL SA (NYSE:TOT)
TOT has a market capitalization of $130 billion. Its dividend yield last year of 5% is among the best in the industry. Current P/E ratio of 9.2 seems very attractive compared to the industry average of 12. The stock prices did not participate much in the recent bull market. While smaller sized competitors such as ConocoPhillips (NYSE:COP), Marathon Oil Corporation (NYSE:MRO) and Statoil ASA (NYSE:STO) offered spectacular returns (ranging from 30% to 50%), Total’s return in 2010 was only 2%. One may find that the price will catch up with profits.
3. SeaDrill Limited (NYSE:SDRL)
SeaDrill is a company that is mostly involved in offshore drilling. The company provides mobile units, tender rigs and well services across the world. There is a direct connection between oil prices and the profitability of SeaDrill. Last year’s dividend yield was 7.6%. Current P/E ratio of 11.9 is lower than similar sized competitors such as Noble Corporation (NYSE:NE) and Pride International (NYSE:PDE). Jonathan Auerbach's Hound Partners and Craig Effron's Scoggin have large investments in another offshore driller, Ensco Plc (NYSE:ESV).
4. Pioneer Southwest Energy Partners LP (PSE)
Pioneer Trust engages in onshore drilling in America's southwest. Current P/E ratio is 11.5 and the dividend yield is 6.5%. Following the rise in oil prices, last year’s return was almost 40%. The company still looks like a good buy compared to competitors such as Petroleum Development Corporation (PETD) and BreitBurn Energy Partners (NASDAQ:BBEP), which have P/E ratios of 90 and 20 respectively. Baupost's Seth Klarman has been a long-term investor in BBEP, but he has been trimming his holdings recently.
5. Alliance Resource Partners, L.P. (NASDAQ:ARLP)
Coal is also an attractive investment to protect investors against runaway inflation. Industrial use of coal is particularly quite high. Flexible electricity producers switch between coal and other energy sources and this causes a high correlation in prices. The price of coal also collapsed from $200 per ton to $60 per ton during the financial crisis. The current level of $120 is 40% lower than its peak price. ARLP is a very profitable company, and it will benefit from the rise in coal prices. Current P/E ratio of 10 and dividend yield of 5% suggests ARLP is a very good buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: I am long physical gold.