Big Dividends In Oil And Gas

By Joseph Nguyen | March 03, 2010 AAA

According to the recently released Retail Sales report, consumers are starting to slowly return to their normal buying habits. The strong U.S. retail sales report fueled markets higher on Thursday, after reporting a much better than expected 3.7% gain compared to consensus estimates in the 2% range. Coupled with the recent surprise upward revision in Q4 real U.S. GDP to 5.9%, these may be signals a recovery is taking shape despite considerable headwinds still facing the economy.

IN PICTURES: How To Make Your First $1 Million

Commodity Potential
The most attractive investments when the economy shifts to the recovery phase in the business cycle are typically your commodities and cyclical stocks. Since it's impossible to predict the start of a recovery, one applicable strategy to consider would be to invest in companies with exposure to commodities, like oil and gas, which also have high dividend yields. This way you get paid while you wait.

But it is important to note that a regular dividend will only help to keep a stock's price stable as long as the dividend payment keeps getting paid out. If a company decides to decrease its regular dividend amount or cease it altogether, a stock that was once considered a dividend darling can easily take a nasty tumble.

So, if you are looking to beef up your portfolio with some high-paying dividend stocks, the best place to start hunting is with stocks that have paid out increasing dividends consistently over a period of years.

Generally speaking, the longer a company has paid out a high dividend yield, the more likely it is to continue doing so in the future. (To learn more about the compound nature of dividend returns, check out The Power of Dividend Growth.)

The following list highlights stocks that we have indentified that may be attractive for their exposure to oil and gas and have high dividend yields. With that in mind, here are nine high-yielding oil and gas companies:

Company Ticker Market Cap () Dividend Yield (%)
Linn Energy, LLC Nasdaq: LINE 3.54 9.24
Pioneer Southwest Energy Partners, L.P NYSE: PSE .68 8.84
Provident Energy Trust NYSE: PVX 2.17 8.36
Penn West Energy Trust NYSE: PWE 8.67 8.34
Penngrowth Energy Trust NYSE: PGH 2.83 7.31
Enterprise Products Partners, L.P NYSE: EPD 20.13 6.81
BP plc NYSE: BP 172.3 6.10
Total SA NYSE: TOT 125.9 5.81
Western Refining Inc. NYSE: WNR .45 4.77

Linn Energy
This independent oil and gas company gives quite a bit of cash back to shareholders, paying a significant 9.24% dividend yield. However, even with the high yield, the company's historical payout ratio has only been around 40% with the rest of earnings going back into growing the company. In 2009, the company used those funds to increase in proved reserves to 1,712 Bcfe from 1,660 Bcfe in 2008 in addition to management expecting "increased acquisition opportunities" in 2010.

Also, the company estimated the PV-10 of its proved reserves at about $3.7 billion, which is just a hair above its market cap of $3.54 billion. If looking solely at asset-based valuation, this may indicate the company is trading close to its fair value at current commodity prices.

Dividends For The Long Haul
Despite the cliché, you certainly don't have to be a widow or an orphan to appreciate the staying power dividend-paying stocks can add to your portfolio over the long haul. Keep your eye on these high dividend-yielding stocks and share your opinion about them in the FREE Stock Picking Community.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Analysis
  1. These stocks have been weak, and despite rallies, investors might be better served by selling or shorting as opposed to buying.
    Chart Advisor

    Time To Take Profits On These 4 Rallying Stocks?

  2. With its huge population and booming economy, China is tops for many emerging markets investors. Here's a leveraged ETF for those who want to double down.
    Stock Analysis

    This Leveraged ETF Is For China Bulls

  3. Chart Advisor

    Is Natural Gas About to Tank?

  4. Investing

    Connect The Dots: Get 40% Gain Potential From This High-Yield Stock

  5. Chart Advisor

    Is It A Breakout? See The Point-And-Figure Chart

Trading Center