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When researching a particular sector or stock, my attention is often temporarily diverted to other opportunities that were not originally contemplated when the research began. This was the case when researching small capitalization energy stocks. I found that a few of these companies have preferred shares with yields of nearly 9% and above. Of course, the higher yield is due to the higher risk associated with the investment. Therefore, these preferred stocks may not be appropriate for all income portfolios. However, soaring oil prices should help most energy stocks at least keep making their preferred dividend payments as long as they have exposure to oil and natural gas liquids. Below are a few of the companies I looked at that had high-yielding preferred shares outstanding.

Double Eagle Petroleum Company (DBLE) issued shares of 9.25% Series A Preferred Stock on July 3, 2007 trading under the symbol (DBLEP). The preferred shares have a liquidation preference of $25.00 and no maturity date. The preferred shares can be redeemed any time, at the company's option, on or after June 30, 2012 for $25.00 cash plus accrued and unpaid dividends. At the recent closing price of $26.10 per share, the preferred shares of Double Eagle are currently yielding 8.86%.

Double Eagle is a small oil and gas exploration and production company with a market capitalization of approximately $116 million. The company's reserves and production are almost entirely natural gas which in the current pricing environment for natural gas is not a positive. Nearly all of the production and reserves are located in the Atlantic Rim and Pinedale Anticline plays located in the state of Wyoming. However, the common stock price has soared recently, more than doubling since the first of the year. This may be the result of the Niobrara acreage the company owns where investors are betting the company strikes oil. The company has 70,000 net acres and has plans to begin drilling in 2011. The company also owns 12 miles of underutilized pipeline assets as well as interests in other oil and gas plays that include Madden Deep in Wyoming, Whiskey Buttes in Wyoming, and the Table Top Unit in Utah.

Magnum Hunter Resources Corporation (MHR) initially issued shares of 10.25% Series C Cumulative Perpetual Preferred Stock on December 13, 2009 trading under the symbol (MHR-PRC). The preferred shares have a liquidation preference of $25.00 and can be redeemed at the company's option for $25.00 per share any time on or after December 14, 2011. Based on a recent closing price of $25.76 per share, the preferred shares of Magnum Hunter are currently yielding 9.95%.

Magnum Hunter is a diversified oil and gas exploration and production company with a market cap of approximately $585 million. The company's reserves and production are much more oil and natural gas liquids-weighted than the other two companies I discuss in this article. 2010 production was approximately 64% oil and natural gas liquids, but this dropped from previous year levels due to an acquisition of a natural gas player. The company has acreage in some of the most sought after U.S. resource plays including the Bakken in North Dakota, the Eagle Ford Shale in south Texas and the Marcellus Shale in Appalachia. The company also owns pipelines and associated rights of way in Appalachia. The company recently announced two acquisitions. The first is the Appalachia-focused NGAS Resources whose reserves are primarily natural gas. The second was the announced acquisition of Williston Basin focused NuLoch Resources, Inc. with assets in both the U.S. and Canada. The NuLoch reserves are primarily oil.

GMX Resources, Inc. (GMXR) issued shares of 9.25% Series B Cumulative Preferred Stock in August 2006 trading under the symbol (GMXR-PR). The preferred shares can be redeemed by the company at any point after September 30, 2011 for $25.00 per share. Based on the recent closing price of $25.10 per share, the preferred shares of GMX Resources are currently yielding 9.2%.

GMX Resources is an oil and gas exploration and production company with a market cap of approximately $156 million. The company's reserves are primarily natural gas, but an effort to transition to more oil and natural gas liquids is currently underway. You can read more about this effort in my article dated March 7, 2011. Even though the company will be dedicating larger portions of its 2011 and 2012 capital expenditures to new oil and liquids rich plays in the Bakken and Niobrara, the company's core area of operation is still the natural gas rich Haynesville/Bossier Shale play in east Texas.

Magnum Hunter would seem to be in a slightly better position given today's higher oil prices, but it also must now absorb two acquisitions and may not be the best overall investment. It is important to note that just because preferred stocks tend to be less volatile than common stock, it is still imperative to do full due diligence prior to making any investments. The prices of these stocks can collapse if they start missing dividend payments and look to be in financial crisis. It is also important to pay attention to the redemption dates and how much you are paying for the stock relative to the dividend you will receive. Each of these preferred stocks allow the company to redeem your shares at $25.00 per share anytime after the date noted previously in this article for each issue.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 3 Small Cap Energy Stocks With a High-Yield Preferred Option