Oil Dividends From Ground to Pump

By Aryeh Katz | September 01, 2009 AAA

The story of how crude oil is pumped from the earth, transported overseas to local refineries and then sent on to the pumps for consumers is ultimately an instructive one. Particularly when the companies involved are also an income investor's dream. These companies pay a high annual dividend and are supported by strong fundamentals and a history of stable capital appreciation. Below we highlight three such companies, a transporter, a refiner and a retailer of crude product that every market participant should be aware of.

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Our journey begins in Denmark, a country known for centuries as a shipbuilding powerhouse on the Baltic. From there, TORM A/S (Nasdaq:TRMD) has operated a fleet of dry bulk and product tankers for 120 years, now primarily for the transport of naphtha, gasoline, diesel oil and jet fuel. The company maintains 130 vessels in its fleet, after selling three bulk carriers this summer.

A Century Old Name in Shipping

TORM shares have been treading water since the storm from last year's sub-prime debacle tore through the markets, but the shares have climbed off 52-week lows set this spring to trade by more than 25% higher. And with a P/E ratio of 3.52 and a dividend yield of 14.7, TORM shares demand a look by every serious income-oriented investor.

TORM shares are available at half the company's breakup value (P/B is 0.52) and price-to-sales is a paltry 0.60. Reports from the company regarding cost cutting measures indicate that TORM is on track to realize annual savings between $40 and $60 million from 2010 onward. (Don't let your portfolio construction fall out of fashion, see Is Your Investing Style Hot, Or Not?)

Once the shippers deliver their product to our sunny shores, it is stored with refiners and marketers such as Sunoco, Inc. (NYSE:SUN), which operates principally in the eastern United States. Sunoco shares trade with a P/E of just 4.48x last year's earnings and offer investors a respectable 4.4% annual yield. The stock has climbed 30% since a mid-July investigation into four employees ended with their being suspended from work with the company.

Give'er the Gas!
Getty Realty Corp.
(NYSE:GTY) owns and leases most of its gas station and convenience store properties and petroleum distribution terminals to its primary tenant, Getty Petroleum Marketing Inc. With an interest in over 1000 such properties, GTY is a cash cow, and rewards its stockholders accordingly. The shares pay an 8.1% dividend and trade with a P/E of 14.7. Getty just last week announced an increase in its quarterly dividend, the fifth straight year that shareholders have seen an increase. Getty shares are up 77% since March.

The Wrap
The story of crude oil's journey is a profitable one for those companies partaking of it, and for shareholders invested in it. The above three issues tell a tale of income earned by investors who've done their homework and are willing to read between the lines. (Don't let your portfolio go with it! Find out which signs to watch out for, read Is Your Stock Headed South?)


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