I feel energetic just thinking about energy companies. I’ve compiled a list of 7 energy related companies that have large dividends of at least 7%. Let’s see which ones are worth investing in.
Prudhoe Bay Royalty Trust (NYSE:BPT) holds royalty interests with minerals in the Alaskan Prudhoe Bay oil field. It pays a dividend of 7.2%. It’s the largest conventional oil and gas trust in the U.S. The valuation of BPT is scary in a negative way: it trades at 3,645 times book value per share. This puts BPT at risk of any negative news regarding the Prudhoe Bay oil fields.
Prudhoe Bay is also experiencing production declines. The amount of oil that a well produces decreases steadily over time. Prudhoe Bay went from producing over 650,000 barrels of oil per day in the late 1980s to about 100,000 barrels per day today. This production decline should continue as the oil field gets closer to depletion. This is one company to avoid. Don’t fall into the dividend trap with BPT.
Eagle Rock Energy Partners (NASDAQ:EROC) is a small cap company involved in the gathering, processing, and transporting of natural gas and natural gas liquids. The company has operations in various locations in Texas and in the Gulf of Mexico. Eagle Rock currently has plans to build a new processing plant to be completed in late 2012 known as the ‘Wheeler Plant’, which is located in Wheeler County, Texas.
Eagle Rock pays a dividend of 8.2%. It is undervalued as the stock trades at only 1.23 times book value per share. It has a healthy cash flow of $101.86 million and EPS of 0.49. It is expected to grow earnings annually at 20% for the next five years. If it hits these targets, EROC stock could go from $10 to over $25 or $30 in five years.
Enbridge Energy Partners (NYSE:EEP) operates natural gas gathering, processing, and marketing assets with over 16,000 miles of oil and natural gas pipelines in the United States. The company has plans to spend $90 million to expand its North Dakota system by 100,000 barrels per day. This expansion, which is known as the Bakken Access Program is expected to be operating by 2013.
Enbridge currently pays a 7.1% dividend. It is undervalued as the stock trades at only 2.33 times book value per share. It has a cash flow of $618.7 million and EPS of 1.01. Enbridge is expected to grow earnings annually at 4.11% for the next five years. This is not spectacular earnings growth, but when combined with the dividend, it can yield 11.21% per year, which may beat the market by a few tenths of a percent.
Energy Transfer Partners (NYSE:ETP) operates in natural gas midstream and intrastate transportation and storage businesses in the U.S. It has operations in the Eagle Ford Shale, the Permian Basin, the Barnett Shale, the Marcellus Shale, the Bossier Sands, the Uinta and Piceance Basins, and the Haynesville Shale. It owns and operates about 7,000 miles of natural gas gathering pipelines, 3 natural gas processing plants, 17 natural gas treating facilities, and 10 natural gas conditioning facilities.
ETP is currently working with Exxon Mobil’s (NYSE:XOM) subsidiary, XTO Energy in constructing a 117 mile natural gas gathering pipeline from the Woodford Shale to the Barnett Shale. The companies will also construct a 200 million cubic feet per day cryogenic processing plant at its Godley processing facility in Texas.
Energy Transfer Partners is undervalued as the stock trades at only 1.84 times book value per share. It has a healthy operating cash flow of $1.13 billion, an EPS of 1.31, and a profit margin of 10.63%. It pays a nice dividend of 8.2%. ETP looks good as it is expected to grow earnings annually at 18.81% for the next five years. If it can meet these expectations, owning the stock could provide investors with a 27.01% total annual yield.
Linn Energy (NASDAQ:LINE) is involved in the development and acquisition of oil and gas properties in the United States. It holds interests in Texas, Oklahoma, Kansas, Louisiana, Illinois, California, Michigan, and New Mexico. Linn operates 7,097 productive wells and has reserves of 2,597 billion cubic feet of oil and gas. The company’s primary goal is to provide stability and growth of distributions for the long-term benefit of investors.
LINE stock is undervalued as it trades at only 1.73 times book value per share. It has an operating cash flow of $573.93 million, an EPS of 2.29, and a profit margin of 48.52%. It pays a dividend of 7.8%. LINE is expected to grow earnings annually at 9.29% for the next five years to provide a total annual yield of 17.09%.
NuStar Energy (NYSE:NS) is involved in the storage and transportation of petroleum products. It is also involved in asphalt and fuels marketing. NuStar has 80.4 million barrels of storage capacity, 5,605 miles of refined product pipelines, 2,000 miles of anhydrous ammonia pipelines, and 812 miles of crude oil pipelines.
NuStar pays an 8% dividend. It is also undervalued as it trades at only 1.47 times book value per share. NuStar has an operating cash flow of $283.54 million, an EPS of 3.14, and a profit margin of 4.16%. Its balance sheet is solid with a current ratio of 1.22. Its earnings growth is consistent as it averaged 2.8% annual growth the past five years and is expected to grow annually at 3.92%. Although this growth doesn’t sound like much, when you combine the dividend, its total annual yield becomes 11.92%.
PAA Natural Gas Storage (NYSE:PNG) is involved in the development and operation of natural gas storage facilities. It owns three facilities in Michigan, Louisiana, and Mississippi. The company is planning on growing by expanding existing facilities and by acquiring additional storage facilities.
PNG pays a dividend of 8.3%. It is also undervalued as the stock is trading right at its book value per share. It has an operating cash flow of $75.16 million, an EPS of 0.75, and a healthy profit margin of 22.29%. PNG is expected to grow earnings annually at 11.43% for the next five years.
I think that all of these are worth investing in except for BPT, due to its overvalued state and steadily declining production. The top choices in my opinion are EROC and ETP due to their strong expected earnings growth tied to their strategic expansion plans.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.