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7 Energy Investment Ideas for Strong Income

|Includes:BP Prudhoe Bay Royalty Trust (BPT), GLP, NRP, NS, PBT, PXD, SPH

Although oil prices moved up and down in recent weeks, many prominent investors believe that in the intermediate-term, there are compelling reasons for higher oil prices. Recently, in an interview with CNBC, Frank Holmes, the chief investment officer at US Global Investors, stated

As an investor, this volatility can be difficult to handle. Throw in the uncertainty of today’s geopolitical environment and investors feel the need to downsize their position in commodity investment, such as oil … The 1.3 million barrels of demand growth that is expected for 2011 is less than last year, but is more along the lines with historical rates and maintains the forward momentum for rising oil demand.

The oil prices will be hovering above $100 due to relatively weak dollar, rising market demand, and political uncertainty. Although subject to recent volatility, energy stocks are still attractively valued for income oriented investors. Here, is a list of seven energy trusts/partnerships paying substantial dividends/distributions (data from finviz and morningstar):

BP Prudhoe Bay Royalty Trust (BPT) is one of the most widely followed U.S. oil and natural gas royalty trusts in the market. The Company is the largest conventional oil and natural gas trust in USA. BPT has one of the largest oil fields in North America. Market cap of the BPT is $2.39 billion, and P/E ratio is 12.80. The company comes forward with a projected yield of 8.6%. BP Prudhoe Bay recently paid $2.39 per share with ex-dividend date of April 13th.

Global Partners LP (GLP) is involved with commercial distribution of refined petroleum products and natural gas. It provides ancillary services in the United States and internationally. The market cap of the company is $554.61 billion, and P/E ratio is 14.63. Global Partners LP’s projected yield is 7.78% and the company paid $0.5 dividends per share in the last 2 quarters. Global Partners LP announced financial results for the first quarter 2011. According to this report, product volume of the company increased to 1.3 billion gallons and gross profit of the company climbed 18% to $56.3 million.

Natural Resource Partners LP (NRP) is a master limited Partnership headquartered in Houston. The company is principally engaged in business of owning and managing mineral reserve properties. NRP owns coal, aggregate oil and gas reserves across the US. The market cap of the company is $3.42 billion. P/E ratio is 18.98, but forward P/E falls to 15. NRP has a projected yield of 6.8%. Shareholders will enjoy a quarterly distribution of $0.59, in the next quarter. The stock is up by almost 60% within a year. The company announced that the revenues increased by 34% and net income attributable to limited partners of the company increased by 163% compared to the first quarter of 2011.

NuStar Energy LP (NS) is a San Antonio-based, publicly traded and partnership. The company has over 94 million barrels of storage capacity, and is one of the largest asphalt refiners and marketers and the second largest independent liquids terminal operator in the US. NS has a market cap of $4.01 billion. P/E ratio of the company is 18.93, and forward P/E ratio is 16.74. Dividend yield and quarterly dividends paid per share are 6.93% and $1.08, respectively. Furthermore, the company has a nifty current ratio of 2.45.

Permian Basin Royalty Trust (PBT) is a U.S. oil and royalty trust based in Dallas, Texas. It is a one of most profitable royalty trust companies in the United States. The market cap $964.36 million. PBT has a P/E ratio of 14.99, and offers 6.60% yield. Recently, PBT declared a cash distribution of $0.136 per unit, payable on June 14, 2011, to unit holders of record on May 31, 2011.

Pioneer Southwest Energy Partners (PSE) engages in the ownership acquisition of oil and natural gas properties in the United States. The company was founded in 2007 and is based in Irving. The market cap of the PSE is $975.05 million. Although trailing P/E ratio is 18, forward P/E ratio falls to 10.19. Distribution yield of the PSE is 6.93%. PSE will pay $0.51 quarterly dividends for each share. Recently shares experienced extreme volatility, dropping from $36 high to $28 low. However, $28 seems to be a strong support level as shares bounced back to $30.

Suburban Propane Partners LP (SPH) operates in the retail marketing and distribution of propane, fuel oil and refined fuels, and marketing of natural gas and electricity in the United States. The company’s market cap is $1.87 billion. P/E ratio is 16.88, and forward P/E ratio falls to 14.18. It has a yield of 6.45%. This year, so far, shareholders enjoyed quarterly payments $0.85 per share. Suburban Propane Partners has a good balance sheet with $136.92 million in cash and a current ratio of 2.61.

Note that, while higher expected oil prices are more-or-less factored in the stock prices, those listed above pay pretty good yields for income oriented investors. Given the extremely low bond yields, high distribution yields surely offer better income opportunities. For a detailed analysis of Master Limited Partnerships, see David Fish’s excellent article, focusing on MLPs. 

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.