By John Warbuck
While it is true that energy prices fluctuate rapidly, they have risen more times in history than they have fallen, and many energy companies are positioned to gain from increased demand in the near future as Asia requires more access to fossil fuels and Iran threatens to create a conflict in the Strait of Hormuz. The persistent demand for energy makes the sector ideal for finding stocks worthy of dividend reinvestment.
I chose to report on following five companies due to their large, and often overlooked, dividend yields. For example, SandRidge Permian Trust's (NYSE:SDT) yield is pushing 13%, yet the stock trades on significantly lower volume than Sandridge (NYSE:SD). Do the following energy stocks show enough stability and potential for growth in order to be considered for income investing in the long term or are they destined to disappoint? Please use my research on these unique energy investments as a starting point for your own due diligence.
Vanguard Natural Resources (NYSE:VNR) has been giving more to its shareholders slowly over the past four quarters with incremental dividend increases each quarter. In May 2011, it released a cash dividend of $0.57 per share and its dividend has increased very gradually each quarter to sit at $0.59 per share in its upcoming dividend for February, making its projected yield over 8%. Its recent reversal and recovery out of the red two years ago and the steady rise in profits it has seen since suggests that Vanguard Natural Resources has some staying power to support its rising dividend.
Over the last three years, its stock has tripled in value as well, moving from $9 per share in 2009 to $27 in 2012. Its growth and dividend provide a dual benefit, which makes this one a buy for me in 2012 that will provide consistent returns for years.
CNOOC (NYSE:CEO) has lost 17% of its value over the last year, and while it is extremely stable as China's third largest oil company, its returns are not worth it, in my opinion, when one can find a higher yielding energy stock that shows a more bullish trend. It pays dividends biannually of $2.89 per share, but at its share price of a little over $200, this only provides just shy of a 3% yield. I don't have any doubt that this stock is profitable, but it is not profitable enough for me and I feel I can get a much higher return if I look elsewhere.
VOC Energy Trust (NYSE:VOC) has shown its investors diminishing returns over the past three quarters as its dividend fell each quarter from $0.88 per share to $0.44 in its most recent payout. It recently received two separate downgrades from analysts and its stock value took a $3 drop right after the announcement. This trust is also fairly new and has only been traded since May of 2011, so I believe that many people want to wait for the stock to prove itself before taking a position, and its recent downgrades have only bred more distrust in potential investors.
I don't think that VOC Energy Trust is going to be a buy until it shows more value to its shareholders and reestablishes the 8% yield it was providing when it offered dividends of $0.88 per share. A loss of 50% of its dividend and its declining value make this stock a loser for me.
SandRidge Mississippian Trust (SDT) is also a new stock on the market that hasn't established much of a history for itself either. Its shares have grown in value from $24 per share to $34 over the last nine months and it has paid out two dividends of $1.07 and $0.82 per share at a projected yield over 9%. Unlike VOC Energy Trust, I believe that SandRidge stands a much better chance of increasing value based on its ability to pay out well in both quarters it provided dividends on. Its stock is looking very bullish right now as well which gives a dual benefit when combined with high yielding dividends and I think that it has all the makings of a winner so far for 2012.
SandRidge Permian Trust (NYSE:PER) is far too young for me to take a position in and I want to see how it fares for a few more months before determining if it is a potential winner. Based on its first dividend of $0.72 per share, however, it shows a projected yield of nearly 13% and is worthy of consideration. I just don't believe that this stock has shown enough history to determine whether it can continue to provide a dividend at its current projections.
I think that Vanguard Natural Resources is my favorite because it is the only truly established stock in the list that provides decent and consistent returns to its shareholders. Its dividend has been continually increasing with its share value and I believe it has had enough time to show that it is a dependable in a long term strategy. CNOOC does not provide enough return to justify a position and the rest of this group consists of very young stock that hasn't had enough time to establish a pattern of consistency. I do think that SandRidge Permian Trust will be a winner this year, but I also think that a position in it is of substantially higher risk and not ideal for a long-term income investment strategy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.