If you are concerned about the recent nosedive in energy, food and metal stocks, your worries are over. A healthy paying resource dividend stock will buffer any downside risk that still remains in the market while paying you handsomely to wait for a commodities rebound.
The rise in global commodities prices has recently been dealt a severe blow. Oil and gas stocks have fallen precipitously since the price of crude futures dropped from nearly $150 a barrel to its current sub-$115 level. Gold fell from a recent high of $980 an ounce to below $800 in less than a month. And on it goes. Similar drops were experienced in the trading pits of nearly all commodities.
So, are we at the end of the commodities bull run? Many investors see global demand - and in particular, Asian demand - continuing to rise for all manner of metals, foods and energy, and so a closer look is warranted.
Cracking the Commodity Conundrum
High paying preferred, mandatory and master limited partnership (MLP) stocks offer investors a clever way to deal with the current investment conundrum. You want to buy an oil or a gold or copper producer, but you don't want to have it drop another 10-15% before it bottoms and you see some price appreciation. On the other hand, if the bottom is in, you don't want to miss the opportunity to participate in the upside now. So, what's an investor to do?
The answer is a resource stock from a well-managed company that pays a big dividend and has sufficient cash resources to continue paying it. (To learn more about these unique investments, read Discover Master Limited Partnerships.)
Preferred Shares for Oil, Copper, Gold and Silver
Wall Street doesn't take kindly to cuts in the dividends of preferred shares. The cut is seen more as a default on a bond than a simple reduction in payout. That's another reason to like the items listed below. Each is the preferred share of a world class resource player with a solid record of payment.
- Repsol, S.A. (NYSE:REP) is Spain's largest oil company, the sixth largest oil company in Europe, and the seventh largest in the world. It operates in over 30 countries in Latin America, the Middle East, and North Africa and its preferred shares (NYSE:REP-A) currently trade at $24.75 and pay a 7.52% dividend.
- Freeport McMoran Copper and Gold (NYSE:FCX) offers investors a mandatory (convertible preferred) share (NYSE:FCX-M) for about $124, and pays a very healthy 5.45% to anyone wanting to wait out the turn in copper and gold. Freeport is the world's second largest copper miner and has significant exposure to gold and silver as well.
- Hecla Mining (NYSE:HL) is one of the world's largest silver producers and a component of the widely followed HUI Gold Bugs Index. Hecla offers investors a mandatory preferred share (NYSE:HL-C) with a current yield of 8.8% at the current price of around $74. Many investors view silver as a more promising investment than gold, and if you share this view, the Hecla Mandatory is currently an excellent buy.
Master Limited Partnership for a Pipeline
A master limited partnership is essentially a tax-savings structure for large utilities, pipelines and other heavily regulated industrials. For investors, it generally means two things: higher dividend payouts and maintenance of a brokerage account. The brokerage account stipulation comes from the fact that that MLPs are more advantageously held within a brokerage account rather than a tax-deferred, but it's best to check with your financial advisor regarding your personal details.
4. Oneok Partners (NYSE:OKS) operates oil and natural gas pipelines in the American West and Mid-west and currently trades at $55.60. The yield is a solid 7.63% (paid quarterly) and the price-to-earnings ratio is a mere 10.75. Oneok Partners is a leader in the pipeline field. Management has built a strong balance sheet and cash flows, and has recently been raising the dividend and buying back stock.
Whether a rebound in commodities takes one month or six, each of the above stocks offers tremendous income in the interim and a great capital appreciation opportunity once the market recovers. They all have outstanding payout records and are leaders in their respective industries. If the commodities group does move lower, the dividends on these stocks should buoy them from any significant decline.
Read The Power of Dividend Growth to learn more about the importance of dividend paying stocks in your portfolio.