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By Roger Choudhury

I ran a stock screen on the oil and drilling sector. Preferred stocks tend to be speculative in this arena, and thus have higher yielding securities. With the Fed targeting 0%-0.25% for the federal funds rate, staying in cash does not beat inflation. So, you ought to consider the following:

ATP Oil and Gas (ATPG) (8% Cumulative Convertible Series B)

Recent Price

$38.00 per share

Callable?

No, but par value is $100 per share

Preferred Stock IPO

Jun 2011

Dividends

$2.00 per quarter

All payments made since inception

Next dividend payment should be on Apr 2

Record date is on Mar 15

Current yield

20.9%

S&P Rating

None

52 week trading range

$33.00 - 95.00

Ticker symbol (Yahoo! / Google / Fidelity)

ATPGP

In the first nine months of 2011, loss before taxes fell by 42.3% to $113.982 million from $197.646 million in the same period in 2010. In part, this is attributable to a positive EBIT in Q3 2011 of $55.099 million from a loss of $71.273 million in Q3 2010. Additionally, oil and gas production for Q3 2011 was 2.2 million barrels of oil equivalent ((NYSE:BOE)), or 24,200 Boe per day, compared to 1.9 MMBoe (21,100 Boe per day) for Q3 2010, reflecting a 15% increase. However, interest expense grew by 71.0% to $249.883 million in the first nine months of 2011.

Any conservative investor would be worried about the viability of preferred dividend payments, but these are cumulative, in this case. For this reason, the risk may be worth taking on. I only suggest that very aggressive investors purchase ATPGP.

Evolution Petroleum (NYSEMKT:EPM) (8.50% Cumulative Series A)

Recent Price

$27.95 per share

Callable?

Yes, at $25 per share, after June 30, 2014

Preferred Stock IPO

Jun 2011

Dividends

$0.177083 per month

All payments made since inception

Next dividend payment is on Feb 29

Record date is on Feb 17

Current yield

7.5%

S&P Rating

None

52 week trading range

$22.50 - 28.09

Ticker symbol (Yahoo! / Google / Fidelity)

EPM-PA / EPM-A / EPM/PA

In the first six months of fiscal year 2012, the company reported an EBIT of $4.45 million compared with a loss of $1.20 million. This is a great turnaround. Additionally, net oil and gas volumes for Q2 2012 were 52,306 barrels of oil equivalent (569 BOE per day), a 12% increase from the prior quarter's 46,800 BOE (509 BOE per day) and a 136% increase over Q2 2011 sales volumes of 22,119 BOE (240 BOE per day). In the first six months of fiscal year 2012, preferred dividends came out to $293,240 relative to a profit of $2.56 million. I would say that one should feel relatively comfortable with receiving preferred dividends for the next year or so. I recommend this security only those willing to take on a substantial amount of risk. Retirees should definitely avoid it.

SandRidge Energy (NYSE:SD) (8.50% Cumulative Convertible)

Recent Price

$123.85 per share

Callable?

No, but par value is $100 per share

Preferred Stock IPO

Jan 2009

Dividends

$4.25 semiannually

All payments made since inception

Next dividend payment should be on Aug 15

Record date should be in the final week of July

Current yield

6.8 %

S&P Rating

B-

52 week trading range

$103.25 - 181.05

Ticker symbol (Yahoo! / Google / Fidelity)

SDRXP

SandRidge Energy has turned a corner. In the first nine months of 2011, EBIT was $550.823 million, compared to a loss of $66.499 million in the first nine months of 2010. Revenues grew by 69.4% to $897.506 million. Interest expense also fell 9.4%. Moreover, the debt to equity ratio has fallen to 1.42 from 2.97 in 2008. These are all good pieces of news for continued preferred dividend payments. I would suggest that aggressive income investors should consider buying shares on a pullback. Around $110 would a good entry point.

Whiting Petroleum (NYSE:WLL) (6.25% Convertible)

Recent Price

$243.70 per share

Callable?

Yes, at $100 per share, after June 14, 2013

Preferred Stock IPO

Jun 2009

Dividends

$1.5625 per quarter

All payments made since inception

Next dividend payment is on Mar 15

Record date is on Mar 1

Current yield

2.5%

S&P Rating

B

52 week trading range

$145.00 - 351.77

Ticker symbol (Yahoo! / Google / Fidelity)

WLL-PA / WLL-A / WLL/PA

EBIT shot up by 56.3% to $682.116 million in the first nine months of 2011. Also, the debt to equity ratio stands at a healthy 0.41. Preferred dividend payments were only $808,000, so the share price is probably very high due to a limited supply of preferred shares. The play here is that the company may convert the preferred shares if the common shares exceed the conversion price of $43.4163 for 20 of any 30 consecutive trading days. When the preferred shares are converted, you obtain 2.3033 common shares at the aforementioned conversion price. Currently, WLL is trading above $54.75. Do the math, purchase WLL-PA at $160 or below and if WLL is trading above $70. Watch and wait.

Source: 4 Speculative Oil And Drilling Preferreds To Consider Now