The energy sector is fertile hunting ground for investors looking for high yield stocks. The sector includes some of the world's largest stocks with large amounts of cash flow to pay out as dividends to a range of master limited partnership - MLP - and limited partner - LP - companies designed to throw off distributions from producing oil and gas wells, pipelines or retail energy distribution.
To cover the large number of big dividend energy stocks, this discussion will be broken up into a series of articles, each covering five or so energy stocks. Get ready to take some notes or bookmark the articles with the stock which are a fit for your portfolio. What makes each of these stocks (and partnership units) unique is their above average yields. The companies in this analysis yield 4-11% per year.
Ferrellgas Partners, L.P. (FGP) Ferrellgas sells propane and propane equipment to retail and commercial customers under the Ferrellgas and Blue Rhino brands. The company has a current market cap of $1.3 billion and the stock yield is almost 11.5 percent. FGP has paid 50 cent distribution since the first quarter after going public in 1995, reaching almost 70 consecutive distribution payments to date. Investors should not expect a dividend increase in the near or any future. Still 11 percent is 11 percent if the company maintains the distribution level.
Chesapeake Midstream Partners, L.P. (CHKM) This company was spun off by large cap energy company Chesapeake Energy (CHK) in 2008 to hold the company's midstream natural gas gathering, compression and transmission assets. The midstream sector of the natural gas business tends to be the most stable revenue-wise and Chesapeake Midstream Partners can expand its gathering network as Chesapeake Energy and other companies complete new gas wells. This $4.2 billion company paid its first distribution of 21.65 cents in November of 2010. The payout has increased for five straight quarters with the most recent declared in November 2011 at a rate of 37.5 cents. CHKM current yields right at 5 percent based on the most recent distribution rate.
EnCana Corporation (ECA) Encana is a natural gas exploration and production company organized as a corporation and not as a MLP or L.P. The company drills for and produces natural gas in British Columbia, Canada and the southwestern U.S. The current 20 cents per share quarterly dividend gives this $13.8 billion market cap a current yield of 4.3 percent. Encana was paying a 40 cent quarterly dividend in 2007 and 2008. Then lower gas prices resulted in the halving of the distribution. The current 20 cents quarterly was paid for both 2010 and 2011. The current low market price for natural gas makes dividend increases in the near term unlikely.
BP Prudhoe Bay Royalty Trust (BPT) As its name implies, the BP Prudhoe Bay Royalty Trust has an overriding royalty interest to receive 16.4 percent of the value of the first 90,000 barrels of daily production from the Prudhoe Bay oilfield worked by BP Alaska. During 2010, the oilfield produced over 200,000 barrels per day. With these shares the quarterly distribution amount varies with the value of crude oil over the quarter. Over the last 5 years, the quarterly payout has ranged from about $1.00 ot $3.00 per share. Using the most recent four distributions, BPT has a yield of 8.2 percent. The share value of BPT also tends to move up and down with the spot price of crude oil.
Martin Midstream Partners L.P. (MMLP) Martin Midstream Partners is a small cap - $780 million - natural gas terminal and storage services company with facilities along the U.S. gulf coast. The current 76.25 cents quarterly distribution gives the shares an 8.4 percent yield. The company's history of moderate annual distribution increases slowed starting in mid 2008 when the distribution reached 74 cents per share. The payout remained at 75 cents for nine consecutive quarters, then it increased by a penny for the first quarter of 2011 and then by a quarter-cent for the 2011 second quarter.
Investors should be aware that the limited partnership type companies issue a form K-1 each year for investors to use with their tax returns. Partnership earnings require extra tax reporting paperwork, but a portion of the annual distributions may be classified as non-taxable return of capital. Most L.P. companies provide information on the tax nature of recent distributions in the investor relations pages of their websites.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.