Thursday, June 19, 2008

Dividend Income: Earn 8% or More

Kiplinger.com has a post with some different ways to earn an 8% yield on your investment. The story covers closed end funds, junk bonds, energy income trusts, ocean shipping companies, REITs, pipeline companies, emerging market bonds and muni bonds. A couple of my favorite stocks come from these categories such as Penn West Energy (PWE), Diana Shipping (DSX) and Kinder Morgan Energy Partners (KMP). Here are some highlights.

Earn 8% or More
Energy income trusts
Expect the world's growing thirst for energy to keep oil-and-gas prices high. That's why royalty trusts, which trade like stocks, are just the right fuel for your portfolio. Barring a collapse in energy prices, they should continue to perform well for years.

The concept is simple: These trusts pass to shareholders all of the income from their interests in producing oil-and-gas fields.

All told, about two dozen royalty trusts trade in the U.S. They yield 6% to 16%, with gas giants, such as San Juan Basin (SJT) and Cross Timbers (CRT), at the low end and Canadian oil-and-gas trusts, such as Enerplus (ERF) and Harvest Energy (HTE), near the maximum.

Ocean-shipping fleets
The U.S. economy may be slumping, but the global transport of oil, liquefied natural gas, coal, iron ore, steel, grains and other high-value cargoes continues to surge.

Genco Shipping & Trading (GNK), whose ships carry coal, steel and iron ore to China, just boosted its quarterly dividend from 85 cents to $1 a share. It could afford to pay out twice that, but chief financial officer John Wobensmith says Genco is limiting dividends to reduce debt. Since Genco's stock has doubled in a year, to $75, it yields just 5.3%. But that tells you business is booming. "The economic situation in the U.S. doesn't have a lot to do with bulk shipping," says Wobensmith. "It's the buildup of Chinese infrastructure." If China's economy implodes, all ships will sink, metaphorically speaking. Until then, stick with shipping stocks.

Pipelines
Here's a way to get yields of 6% or more from oil and natural gas (and maybe some growth, too) without having to worry about which way energy prices are headed. Pipeline operators, organized mainly as master limited partnerships, are reliable dividend payers that offer a bonus of regular payout increases.

Solid, established operators include Enterprise Products Partners (EPD), Kinder Morgan Energy (KMP), Magellan Midstream Partners (MMP), and Plains All American Pipeline (PAA). All have long histories of boosting their payouts and all currently yield 6% to 8%. A tip: Don't own MLP shares inside an IRA. There are potentially nasty tax consequences.

Disclosure: The Div Guy owns shares of PWE, DSX and KMP at the time of this post.

4 comments:

Dividend Growth Investor said...

DivGuy,

What would happen to PWE afte 1/1/2011? I read somewhere that Us investors ( I assume you are a US based blog)will be taxed 15%+31% on the distributions.
The whole uncertainty makes the yields less attractive. The positive is that these canadaina oil and gas trusts could buy new properties, although they have limits to the amount of new units(stocks) they could issue. Otherwise they would be losing their preferential status earlier.

The reserve will last about 10.50 without any new acquisitions. So if the trust cannot do acquisitions in the future by using its stock, the end result would be that you won't be able to recover your investment.

Div Guy said...

DGI,

I purchased shares of PWE after the stock dropped because of the announement on the new taxes. I think the change in the tax laws is factored into price. That said I think as it gets closer to 2011, you may see the stock drop again. I plan to moniter this stock with plans to sell if oil prices drop.

Dividend Growth Investor said...

[...]The Div Guy posted Dividend Income: Earn 8% or More.[...]

PENNY STOCK INVESTMENTS said...

Some excellent dividend stocks.