These Energy Stocks Are Paying Double-Digit Dividends
By Tom Dyson
June 2, 2008
Last week I tried to open a savings account for my son. The credit union offered me a 1% interest rate...
If I had given my money to the credit union, I would have guaranteed my son a 5% annual loss. That's because, by my best guess, the prices of the goods and services I use are rising about 6% a year.
I would have had the same problem if I'd lent my money to the Federal government... or a local corporation. The government pays 4.5% on a 30-year loan. Corporate bonds might pay 5% if they're safe. You'd be insane to make these loans. You're asking for a guaranteed loss on your money.
Economists would say we're in a "period of easy money." In an easy-money period, it doesn't matter who you lend to... You're going to get a bad deal on the interest rate. Think of it this way: Easy money is a transfer of wealth from savers to borrowers.
I write a letter dedicated to finding high-income streams. It's called The 12% Letter... And it aims to generate high yields for my subscribers. You'd think I'd be having a hard time finding high yields in this easy-money environment. But here's the thing...
About six months ago, I discovered a small group of energy stocks with very high dividends. With the huge run-up in oil prices, these energy stocks are now paying enormous dividends to my 12% Letter readers. In one case, my readers are getting a 13% dividend yield on their purchase price and they're up 65% in the stock. So far I've picked five stocks...
|
Current Yield |
Total Return to Readers |
High-Yield Oil Stock #1 |
11% |
15% |
High-Yield Oil Stock #2 |
8% |
10% |
High-Yield Oil Stock #3 |
10% |
35% |
High-Yield Oil Stock #4 |
8% |
9% |
High-Yield Oil Stock #5 |
9% |
65% |
|
Even if the oil price starts falling tomorrow, these stocks will keep rising for many months... And they'll continue to pay huge dividends...
We bought the companies that supply natural gas to the big oil companies in the Athabasca oil sand deposit. These big Athabasca oil companies need large quantities of natural gas to separate the oil from the dirt. And because taking oil from the dirt is so profitable in Athabasca, they'll pay any price to my energy companies.
You see, when a major oil company develops a project in Athabasca, it spends lots of capital upfront... billions... to get its refinery equipment in place. After that, it spends almost nothing while the revenues pour in. It's like a hydroelectric dam. The costs come upfront... all the revenues come behind.
Think about the Miami condo market. If you took a flight over Miami right now, you'd see dozens of construction cranes working on new condo towers... even though the Miami condo market must be one of the most depressed real estate markets in the world.
Why would these construction companies keep building condos when the market is so weak? Because condo projects have large upfront construction costs and low continuing costs. It's cheaper for them to finish their projects than it is to abandon them.
Bottom line is, even if oil prices fall, all the big oil companies are still going to complete the projects they started in Athabasca. It's cheaper to continue mining than it is to abandon the fields. And they'll still need the natural gas that these five companies provide.
I call these companies "backdoor plays" on the energy boom, and I urge you to check them out. There's simply no better place to be to earn big dividends in this easy-money environment.
Good investing,
Tom
Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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