In today's market, investors are so scared that the 10-year US Treasury Note yields only 1.65% due to the high demand for its safe haven status (and QE). However, the 10-year note does not protect against inflation. This could be a significant problem in another year or two. Many people want to be safe, but they still want to earn a significant income.
If you are retired, it is hard to exist on 1.65% interest. If you are younger, you will not grow your principal on 1.65% interest. Linn Energy may be an answer to either case. It is safe, but with its 8.03% dividend, it is a much higher yielding alternative to a Treasury note. Its yield is more than four times the yield of the 10-year US Treasury Note.
How safe is Linn Energy (LINE)? It is 100% hedged through 2017 in natural gas. It is 100% hedged in oil production through 2015, and it is 94% hedged in 2016. You can't get much safer than that. The charts below show the hedges.
The one problem I see with these is that they trend down in price with year for both oil and gas. This is probably acceptable for the next two years or so. However, most people expect oil prices to go up in future years. The EIA forecast for oil is for slight growth in 2013. Most expect the emerging market economies to drive demand (prices) for oil up further throughout the decade. The long-term EIA oil prices forecast chart is below:
As you can see, the oil prices could move much higher than LINE's hedges will pay. This means LINE could lose a lot of money in future years due to hedges. Safety has a price. This does not mean LINE cannot continue to grow. It can still develop its resources. Plus it can buy more as it has since its IPO. The charts below show its historical production and reserves growth.
The growth in both production and reserves is truly impressive. The recent acquisition history is just as impressive. It closed on approximately $1.4B in acquisitions in 2010, approximately $1.5B in acquisitions in 2011, and $1.8B in acquisitions so far in 2012. All of these were high quality acquisitions. The totality of this behavior means that LINE should be able to produce a steady income stream during any upcoming recession. Plus it should be able to continue to grow with good planning.
If you are happy with an approximate 8% dividend and some indeterminant future growth, LINE could be the stock for you. The good news is that the assured income stream (due to the hedges) ensures that LINE will be able to borrow more money for future acquisitions - growth. This will not be true of many other companies. It should allow LINE to pick up some great bargains, when other companies cannot find the money. Hopefully. this will work out well for LINE (and for those who invest in LINE).
The two year chart of LINE provides some technical direction for this trade.
The slow stochastic sub chart shows that LINE is neither overbought nor over sold. The main chart shows that LINE is neither trending up nor trending down. In this market, a sideways consolidation pattern may be a good thing. If you think you will be happy with an 8% dividend payer that may continue to consolidate, LINE may be the stock for you. Its $7.21B market cap should give it stability in a troubled market. Its Beta of 0.9 says it is at least slightly more stable than the overall market.
Linn Energy is an LLC. It runs much like an MLP, but it has no outgoing payments to the general partner (it doesn't have one). This should be a benefit to the investor. Averaging in is usually a good strategy. With the many problems in the PIIGS and elsewhere, averaging in is probably an even better strategy.
Note: The financial fiscal data not from LINE is from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in LINE over the next 72 hours.