Weak oil prices amid slackened demand pushed down the share prices of oil and gas enterprises, but opportunities now are emerging to buy stocks in the sector at reduced prices as they start to bounce back.
Besides the capital appreciation from the expected increase in share prices is the additional incentive of collecting dividend payments to enhance the total return for investors. But exercise caution to avoid the cash-poor and debt-bloated dregs that became overextended during the oil and gas industry downturn.
Among the oil and gas businesses that now seem to be navigating a positive course is NGL Energy Partners L.P. (NGL, Financial) of Tulsa, Oklahoma. An income-focused investment professional who likes the company’s prospects is Bryan Perry, the editor of the Cash Machine investment newsletter, which focuses on recommending the most promising dividend-paying stocks and funds.
The price of WTI crude has been rebounding recently and closed Dec. 8 at $57.34 per barrel, rising from a recent low of $45 per barrel. It rose further on Dec. 11, jumping 69 cents to $58.02, or 1.19%. The gains should not be surprising since the OPEC oil cartel announced on Oct. 11 that it expected the glut in oil supplies that had hurt crude prices in recent months to ease amid increased global economic growth.
As the five-year chart above shows, NGL Energy’s share price topped out in 2014 and has been unable to rebound to those same heights since then. But the stock has started to recover recently and it may be ripe for a sustained rebound as oil prices rise again.
NGL Energy operates propane and butane terminals, crude terminals, water facilities, refined fuel terminals, truck stations and rail leases. An investment in the stock provides exposure to energy distribution, logistics and refining operations. Even if there is plenty of oil and gas supply, moving it, storing it and refining it could increase in demand with a strengthening economy. NGL Energy, which is showing improving margins in all these segments of its business, is one of the oil and gas companies that should benefit.
Even though NGL Energy reported a net loss of $173.6 million for the quarter ended Sept. 30, the financial hit it endured largely stemmed from a non-cash goodwill impairment charge of $116.9 million to its Sawtooth salt dome cavern business, which is part of its Liquids operating segment. That result compared to a net loss of $66.7 million for the comparable quarter ended Sept. 30, 2016.
In addition, NGL Energy’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of fiscal year 2018 rose 20% to $90.8 million, up from $75.5 million for the second quarter of fiscal 2017.
Results for the fiscal second quarter of 2018 beat management’s expectations with the Crude Oil Logistics, Water Solutions and Refined Products segments, said CEO Mike Krimbill. Water volumes were in excess of 655,000 barrels per day for the quarter, with more than 700,000 barrels per day processed in September.
“With these results, we believe the partnership is positioned for significant value growth in the near future,” Kimbrill said.
NGL Energy’s projected 12-month dividend yield is an enticing 11.26%. Its next ex-dividend date is expected in mid-February and the stock closed at $13.85 a share on Dec. 8, after rising 4.83% on the day. It climbed further to $14.25, up 40 cents, or 2.89%, on Dec. 11.
Those gains may be just the beginning of a prolonged upturn for NGL Energy. Improved business conditions and the end of tax-loss selling by the end of December should help to boost NGL Energy’s share price further.
It also is likely that income-oriented investors increasingly will notice an oil and gas company that has the potential to produce share price appreciation and dividend payments. The result could be a formula for significant future gains in NGL Energy’s share price.