The energy sector is home to a significant number of high-yield stocks. Energy stocks can provide investments with attractive 4 to 5 percent yields with a good possibility of a growing dividend stream. On the other extreme are stocks with double-digit yields for investors willing to take the gamble the company behind that big dividend can continue to maintain the distribution rate. One point to remember is that companies organized as corporations pay dividends and those organized as limited partnerships pay distributions. The tax consequences of the two types of payout may be significantly different, depending on your tax bracket and the type of account you purchase the shares through. Discussed here are five energy stocks which illustrate several of the ways this sector can reward investors with dividend distributions.
YPF S.A. (NYSE:YPF) Current yield: 8.4 percent. YPF S.A. is a vertically integrated energy company located in Argentina with shares trading as ADR's on the NYSE. The company participates in exploration and production of oil and gas in Argentina, owns several refineries and distributes and retails refined petroleum products. YPF pays dividends twice a year — usually in May and November — and the amount of each dividend varies based on the semi-annual profitability of the company. Since going to the twice a year distribution schedule, the dividend amount has ranged from $5.50 to $7.15 in Argentine pesos. At the current exchange rate of 4.33 pesos to the dollar the range is $1.27 to $1.65 U.S. For the most recent two payments the total dividend has been $3.39 per ADR share.
Sinopec Shanghai Petrochemical Co. (NYSE:SHI) Current yield: 4.2 percent. Sinopec Shanghai Petrochemical is a mainland China petroleum processing company producing petroleum fuel products, chemicals and synthetic fibers. Dividends are paid annually in May and vary significantly year to year. In 2008 the ADR holders received $1.30 per share, then nothing in 2009. The dividend was 40 cents in 2010 followed by $1.37 in 2011. For investors, this stock is more of a play on the industrial growth in China and the company is more profitable at lower crude oil prices.
Sunoco Logistics Partners L.P. (NYSE:SXL) Current yield: 4.5 percent. Sunoco Logistics provides crude oil and refined petroleum products pipeline and storage services. The company is one-third owned by Sunoco Inc. (NYSE: SUN) and that company provides about 14 percent of the Partners revenues. The quarterly distribution from SXL has been increased every quarter since the first quarter of 2005. A 3 for 1 stock split was declared in December, so the most recent $1.24 quarterly dividend works out to 41 cents quarterly post split. The company announced it expects to increase the distribution rate by 7 percent over the course of 2012.
ONEOK Partners L.P. (NYSE:OKS) Current yield: 4.3 percent. ONEOK Partners is a midstream – gathering, procession, transporting – natural gas company. The company owns one of the largest natural gas liquids – NGL – systems in the U.S. The OKS quarterly distribution did not change from first quarter of 2002 until the second quarter of 2006. Since then the company has increased the payout rate on an almost quarterly basis. In July 2011, the company completed a 2 for 1 stock split. The most recent distribution of 61 cents per share is 6 percent higher than the adjusted pre-split rate. The increase is after just three quarters.
Williams Partners L.P. (NYSE:WPZ) Current yield: 4.6 percent. Williams Partners is an exploration & production, midstream and interstate transport natural gas company. Williams Partners was formed by the Williams Companies (WMB) in 2005. The limited partnership route has become a popular way for energy production companies to raise capital for continued expansion. The WPZ quarterly dividend has consistently increased, often each quarter, the most recent 76.25 cents distribution is double the rate paid in mid 2006.
This list includes a couple of foreign stocks trading as ADR's in the U.S. These companies offer foreign exposure but also currency risk. Investors should understand the current Argentine economic situation before taking a flyer on YPF. Sinopec Shanghai Petrochemical is more of a China economy story than a traditional dividend income stock. The three different L.P. stocks each have their own sources of revenue, giving investors a choice or an opportunity to diversify in the energy sector.
About the author:
At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.
If you are fed up with volatile markets and manipulation that put your financial well-being in jeopardy, join us to achieve those gains you deserve without the headache.