Income, Income-Generating Option Trade, dividends, Capital Appreciation
Contributor Since 2015
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Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
The energy sector has been volatile (most recently thanks to the Saudi Arabian oil field attacks and associated fears), and from volatility comes opportunity. But perhaps more important to many investors, there are a variety of big safe yields currently available in the volatile energy sector. This week’s Blue Harbinger Weekly reviews our Top 5 big safe yields within the energy sector. But before we get into the list, here are a few data tables that we believe may be of interest.
First, here is simple a table of recent performance of the major sector ETFs. And as you can see, Energy has been the absolute laggard over the last year. And whether you think this is a temporary thing, or a big secular change to the way supply and demand works, there are still attractive big safe yields in the energy sector, and we will review multiple top ideas later in this report.
This next table shows the recent performance of a variety of big yield equity securities within the energy sector. There are multiple investor favorites on this list. However, the list is intended to also highlight additional relevant data including how different industries within the energy sector have performed (for example, there are plenty of higher yielding midstream companies on the list).
Finally, to get to our top ideas, they are listed below. However, please be advised that we share (in great detail if you open the full report links) our #5 and #4 energy stocks in this “part 1” report, and the top 3 are available in the members-only “part 2” version of the report. We hope readers will appreciate the big yield energy stocks ranked #5 and #4 (we think they’re both attractive ideas), and you’re welcome to guess what the top 3 may be. Just keep in mind, we prudently diversify all of our members-only investment portfolios (Income Equity, Income Via Growth, and Alternative Fixed Income) across sectors and styles, because we know that prudently diversified, long-term, goal-oriented investment portfolios have proven to be a winning investment strategy over and over again throughout history. We’re not suggesting you can’t opportunistically adjust your investment portfolios around the edges, but for goodness sake—don’t ever lose sight of your long-tern goals (for example, don’t put 100% of your next egg into energy stocks because you think now is a good time to “buy low”).
Without further ado, here is our ranking of the top 5 big safe yields within the energy sector.
BP most certainly has its history of volatility and truly horrific wildlife damage (i.e the deepwater horizon oil spill). But with dramatically improved safety measures in place, combined with its very low (attractive) share price, it’s absolutely worth considering on a standalone basis. In fact, we have written in great detail about BP’s attractive qualities, and you can access our full BP report using the link below.
However, we’ve added BP to our Top 5 list for a different reason. Specifically, unlike all the other names on our list (which are straight “buys”), we are highlighting BP as an attractive opportunity to generate upfront income by selling income-generating, out-of-the-money, cash-secured, put options. Specifically, we highlight a trade gives you the opportunity to generate attractive upfront income (that you get to keep no matter what), and it also gives you the opportunity to own BP and an even lower price, if the shares fall even further than they already have, and they get “put” to you before the options contract expires. Here are the details for this income-generating opportunity:
Sell Put Options on BP (BP) with a strike price of $37 (approximately 5.1% out of the money), and expiration date of October 18, 2019, and for a premium of $0.23 (this comes out to approximately 7.5% of extra income on an annualized basis, ($0.23/$37 x 12 months). This trade not only generates attractive income for us now, but it gives us the possibility of owning shares of BP at an even lower price if the shares fall even further than they already recently have, and they get put to us (and we’d be happy to own BP, especially if it falls to a purchase price of $37 per share).
As a reminder, we generally like to share one attractive income-generating options trade idea with our readers each week (for example, last Monday we did big-dividend REIT HCP, and you can view the headlines for all of our recent members-only options trades here). Overall, we like this BP options trade because of the income and because we like BP as a long-term big yield investment opportunity. You can read our full BP report here.
Similar to BP, Royal Dutch Shell is attractive because it offers a big safe dividend in the volatile energy sector. And considering the fed keeps lowing rates, a safe dividend (6.4% yield) is really saying something. We first shared this idea with our members-only a couple weeks ago when the dividend yield was even higher than it is now (the share price has since risen), but we continue to view the shares as very attractive. Here is how we concluded that previous article:
Royal Dutch Shell’s ‘B’ shares at a 6.7% dividend yield present an attractive risk-reward for income-oriented investors. The company has consistently grown dividends to shareholders despite the swings associated with oil and gas prices via a focus on improving efficiencies, asset portfolio and careful use of leverage. We expect the company to continue returning cash to shareholders in the form of dividends and buybacks in the near to medium term.
The full report gives a lot more detail on why the stock is attractive and why we like the b-shares in particular. You can access the full report here.
As a reminder, the Top 3 Big Safe Yields in the Energy Sector are reserved for members-only, and they are available here. For a little more color, we currently own all three of the top three, and they currently offer yields between 6% and 9% (in addition to their attractive prices). Members can access the top 3 ideas (including a full detailed report for each) here.
What are a few of your favorite Big Safe Yields in the Energy Sector?...
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.