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Investors seeking income in the energy sector have often sought out large-cap, dividend-paying stocks like Exxon Mobil Corporation (NYSE:XOM) or Chevron Corporation (NYSE:CVX). These are great companies, and both have a solid track record in paying and raising dividends. However, both stocks have seen yields drop with a rise in their stock prices - Exxon now yields just 2.5%, and Chevron yields 3.1%.

The combination of a high stock price and lower yields means the potential for returns from these stocks might be limited at best. Owning a stock that pays just 2.6% does not make as much sense, since a stock could easily drop 3% or more in a single day on some bad news. Let's not forget that Exxon missed earnings last quarter and the stock dropped on that news.

This is why investors should consider "second-tier" energy stocks that are not as well known, but offer much higher yields. These types of stocks can yield much more and that higher payout makes the risk of owning stocks more sensible. Here is a closer look at one stock that could be poised to outperform energy stocks like Exxon and Chevron:

Mid-Con Energy Partners (NASDAQ:MCEP) is focused on developing oil and natural gas properties in North America, specifically targeting the Mid-Continent region of the United States. This company was founded in 2011 and it is based in Dallas, Texas. The company website states:

"Our primary business objective is to generate stable cash flow, which will allow us to make quarterly cash distributions to our unitholders at the initial quarterly distribution rate and, over time, to increase our quarterly cash distributions."

Clearly, this company is focused on returning profits to shareholders in the form of a quarterly dividend. This makes it an ideal stock for income investors. It also offers some potential inflation protection, since it has exposure to oil and gas. With the Federal Reserve continuing with easy money policies, oil is likely to keep rising as the dollar falls. Owning what is considered as "hard assets" like gold and oil can protect investors from inflation. Central banks cannot print oil and gold, and that is why investors flock to hard assets in times like this.

Mid-Con Energy Partners appears poised to outperform stocks like Exxon and Chevron primarily because of the dividend payout. Due to the size of these oil giants and because shares prices for both are near 52-week highs, investors might not see as much in the way of capital appreciation as they would have at lower prices in the past. That could mean the dividend yield might be the primary driver of returns for the next few years.

For example, with a 2.6% yield, Exxon might generate about 12.5% in dividend returns over the next five years. For Chevron, at 3.1%, it would be about 15.5%, over five years. However, Mid-Con Energy Partners could provide about 42% returns from the dividend payout in the next five years, which would solidly outperform the suggested returns for the oil giants.

This company recently reported solid financial results. For the second quarter of 2012, it announced adjusted EBITDA of $10.7 million, compared to $6.2 million in the second quarter of 2011. Net income came in at $22.4 million, or $1.24 per limited partner unit, for the second quarter of 2012. (This includes $14.5 million of unrealized gains from commodity derivatives.)

Another positive is that on September 5, Peter Adamson (a director) bought 5,000 shares of Mid-Con Energy Partners, in a transaction valued at $110,500. He also bought 5,000 shares on August 14, and this follows more insider buying that occurred earlier this year.

Key points for MCEP:

  • Current share price: $23.20
  • The 52 week range is $17.25 to $25.18
  • Earnings estimates for fiscal year 2012: $1.77 per share
  • Earnings estimates for fiscal year 2013: $1.99 per share
  • Annual dividend: $1.90 per share, which yields about 8.3%

Key points for XOM:

  • Current share price: $92.30
  • The 52 week range is $67.93 to $92.40
  • Earnings estimates for fiscal year 2012: $7.60 per share
  • Earnings estimates for fiscal year 2013: $8.16 per share
  • Annual dividend: $2.28 per share, which yields about 2.5%

Key points for CVX:

  • Current share price: $117.25
  • The 52 week range is $86.68 to $118.22
  • Earnings estimates for fiscal year 2012: $12.91 per share
  • Earnings estimates for fiscal year 2013: $12.49 per share
  • Annual dividend: $3.60 per share, which yields about 3.1%

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.

Source: This Energy Stock Yields 8.3% And Is Poised To Outperform Exxon And Chevron