The search for yield and demand for dividend stocks has been a theme for many months, and with a soft global economic picture and low rates that probably won't increase anytime soon, that trend is likely to continue. In fact, many investors expect the Federal Reserve and other central banks around the world to announce policies that could further reduce interest rates, or at least extend the term for this period of historically low rates.
This means that investors who continue to park their cash in money market accounts and other low-yielding investments will have little to show for it. After taxes and inflation are factored in, they could even be losing money. That's why it makes sense to find under-the-radar companies with stable business models and relatively recession-proof revenues that can provide high yields. One stock that fits this profile is BreitBurn Energy Partners L.P. (BBEP). Here are a few reasons why this stock makes sense for many investors seeking income:
1) BreitBurn Energy Partners is an independent oil and gas limited partnership. It acquires and develops oil and gas properties. It has major projects located in California, Wyoming, Florida, Texas, Michigan, Kentucky and Indiana. While energy could see some reduced demand in a weak economy, it is not going away anytime soon, and that is why BreitBurn has a solid business model.
2) BreitBurn is set up as a limited partnership that is focused on paying out the cashflow it generates to shareholders. That is what allows this investment to pay an extraordinary yield of nearly 10%.
3) This company recently raised its quarterly cash distribution to 46 cents per share, which will be payable on August 14, 2012 to the record holders of common units on August 10, 2012. The distribution has been rising since May 2010, when it was 37.5 cents. Dividend growth is an important factor for investors to consider, and this trend could continue as BreitBurn expands.
4) The shares appear undervalued in terms of yield. For example, major oil stocks like Exxon (NYSE:XOM) only offer a dividend yield of about 2.6%. Other well-known dividend stocks in the oil and gas industry like Kinder Morgan, Inc. (NYSE:KMI) offers a current dividend yield of about 3.9%. This means BreitBurn is on the upper end of the yield range for this sector, and the payout compares to companies like Seadrill (NYSE:SDRL), which yields about 8.4% and has been trending higher.
With BreitBurn yielding nearly 10%, there is a good chance of capital appreciation as more investors discover this company. The shares also appear undervalued based on the fact that it trades below book value, which is $20.54 per share. To be sure, this is a smaller company when compared to some of the names here, so this may not necessarily be the right stock for a major position, but in a well diversified portfolio, adding some BreitBurn could make sense.
Here are some key points for BBEP:
Current share price: $18.71
The 52 week range is: $15 to $20.19
Earnings estimates for 2012: 22 cents per share
Earnings estimates for 2013: 50 cents per share
Annual dividend: $1.84 per share, which yields about 9.8%
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.