In order to generate income, investors need to get more creative. Everyone knows that money parked in a savings account will end up earning next to nothing, especially if you factor in the effects of taxes and potential inflation. This has led many investors into the relative safety of large-cap dividend stocks. Major corporations with strong balance sheets can be a source of stable dividend income. However, the demand for income has pushed many dividend stocks to trade at, or near 52-week highs, and that means yields are lower.
For example, blue chips like Pfizer Inc. (PFE) now offers a yield of 3.7%, energy giant Chevron Corporation (CVX) yields 3.2%, and as one of the top-yielding energy stocks, ConocoPhillips (COP) comes in at 4.7%. That certainly beats what a money market account will pay, but lesser-known energy stocks can really beat the yields offered by these blue chip stocks. Here is a closer look at one smaller energy stock that could roughly triple the yield of just over 2% that is offered by the average stock in the S&P 500 Index:
Enerplus Corporation (ERF) develops and produces oil and natural gas. It has a diversified asset base ranging from Canada to the United States - which provides a stable cash flow stream. Some projects are located in high potential areas, such as the Marcellus and Bakken regions. It focuses on providing strong returns for shareholders through growth with a generous dividend policy. It has set current guidance for average daily production at 83,500 barrels of oil per day, and it expects to exit 2012 at 88,000 barrels of oil per day.
Here are three reasons to consider buying the stock (especially on pullbacks):
1) It offers a monthly dividend of 9 cents per share. This is ideal for many income investors because most dividend stocks pay a quarterly dividend. Dividends are typically paid to shareholders of record on or about the 10th day of the month.
2) In August, analysts at Zacks Investment Research added Enerplus shares to their #1 rank "strong buy" list. Analyst upgrades can boost investor interest and the share price.
3) Since returns on oil are much higher when compared to the price for natural gas, this company has increasingly focused on shifting towards oil production. The balance of oil to natural gas production is now about 50-50, and it could continue to rise in favor of oil. For example, during the second quarter of 2012, Enerplus drilled a total of 18.7 net wells, of which approximately 75% were oil wells. During the quarter, a total of 18.4 net wells were brought on stream, 67% of which were oil. This strategy could lead to higher growth rates and improved financial results in the future.
This stock is ideal for income investors thanks to a 7% yield, exposure to the energy sector and monthly dividend payments, however, Enerplus shares have been trending higher, so it makes sense to wait for pullbacks.
Here are some key points for ERF:
- Current share price: $15.77
- The 52 week range is $11.35 to $29.50
- Earnings estimates for 2012: 45 cents per share
- Earnings estimates for 2013: 66 cents per share
- Annual dividend: $1.09 per share, which yields about 7%
Data is sourced from Yahoo Finance.
Disclaimer: 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.