Looking for that eight percent total return among the Dividend Aristocrats can be difficult at times when the markets stop going up and begin to level off. I expect part of that eight percent from the dividend and the other part from the gain in the price of the stock itself. When the markets stop moving up, I'm reduced to the dividend itself at best and possibly less if the stock begins to move downward. For stocks that pay a dividend of 5% like AT&T or Verizon the pain can be uncomfortable. For stocks that pay a meager dividend of 1-2% like Lowe's Companies, the pain can be severe.
So where do I find companies to invest in?
One place to look (and there are others) is in the oil patch. And in the oil patch I look specifically at upstream operations. The oil and natural gas industry is made up of three distinct parts: upstream, midstream and downstream operations. Upstream operations refer to that part of the oil and gas industry that deals with exploration and production (E&P) operations. While profits in the oil and gas industry can be gained at all three levels of operations, I've found that the majority of profits occur in upstream operations. Upstream operations consist of searching for potential underground or underwater crude oil and natural gas deposits, drilling of exploratory wells, and subsequently drilling and operating the wells and bringing the crude oil and/or raw natural gas to the surface.
How can these companies generate the eight percent total return that I need?
They can do it because they're organized as Master Limited Partnerships (MLP). MLPs return all of their profits to their shareholders or unit holders in the form of dividend distributions. MLPs are limited to enterprises that are primarily engaged in natural resources, such as petroleum and natural gas extraction and transportation. To qualify for MLP status, a partnership must generate at least 90 percent of its income from activities related to the production, processing or transportation of oil, natural gas and coal. MLPs are then exempt from corporate income tax at both the state and federal levels and may record a pro-rated share of depreciation on their own tax forms to reduce liability.
Generally the stock of MLPs grow very slowly, if at all, because the payout ratios are usually around 90%. This leaves little in the form of retained earnings to grow the company and eventually increase the dividend. They do, however, tend to distribute dividends at a rate that is 5-6 times higher than normal securities (8-11%). As a result these are great securities for investors seeking current income or as great vehicles for generating income for investing in other securities that will grow dividends over time.
There are a number of companies that fit this description and they can be easily found using any number of stock screeners. The following are six of these companies that I'm currently accumulating and enjoying the benefit of a nice dividend stream. Other possible candidates can be found in the "Oil and Gas Exploration and Production" section of this website.
One place to look (and there are others) is in the oil patch. And in the oil patch I look specifically at upstream operations. The oil and natural gas industry is made up of three distinct parts: upstream, midstream and downstream operations. Upstream operations refer to that part of the oil and gas industry that deals with exploration and production (E&P) operations. While profits in the oil and gas industry can be gained at all three levels of operations, I've found that the majority of profits occur in upstream operations. Upstream operations consist of searching for potential underground or underwater crude oil and natural gas deposits, drilling of exploratory wells, and subsequently drilling and operating the wells and bringing the crude oil and/or raw natural gas to the surface.
How can these companies generate the eight percent total return that I need?
They can do it because they're organized as Master Limited Partnerships (MLP). MLPs return all of their profits to their shareholders or unit holders in the form of dividend distributions. MLPs are limited to enterprises that are primarily engaged in natural resources, such as petroleum and natural gas extraction and transportation. To qualify for MLP status, a partnership must generate at least 90 percent of its income from activities related to the production, processing or transportation of oil, natural gas and coal. MLPs are then exempt from corporate income tax at both the state and federal levels and may record a pro-rated share of depreciation on their own tax forms to reduce liability.
Generally the stock of MLPs grow very slowly, if at all, because the payout ratios are usually around 90%. This leaves little in the form of retained earnings to grow the company and eventually increase the dividend. They do, however, tend to distribute dividends at a rate that is 5-6 times higher than normal securities (8-11%). As a result these are great securities for investors seeking current income or as great vehicles for generating income for investing in other securities that will grow dividends over time.
There are a number of companies that fit this description and they can be easily found using any number of stock screeners. The following are six of these companies that I'm currently accumulating and enjoying the benefit of a nice dividend stream. Other possible candidates can be found in the "Oil and Gas Exploration and Production" section of this website.
 BreitBurn Energy Partners L.P. (BBEP) engages in the acquisition, exploitation, and development of oil and gas properties in the United States. The company’s properties include natural gas, oil, and midstream assets comprising fields in the Antrim Shale in Michigan, and the New Albany Shale in Indiana and Kentucky; the Evanston and Green River Basins in southwestern Wyoming, the Wind River and Big Horn Basins in central Wyoming, and the Powder River Basin in eastern Wyoming; the Permian Basin in Texas; the Los Angeles Basin in California; the Belridge Field in the San Joaquin Basin in California; and fields in Florida’s Sunniland Trend. As of December 31, 2012, its total estimated proved reserves were 149.4 million barrels of oil equivalent. BreitBurn GP, LLC serves as the general partner to the company. BreitBurn Energy Partners L.P. was founded in 2006 and is headquartered in Los Angeles, California. (Daily Chart) (Weekly Chart) | 11 June 2014 Price $21.63 1yr Target $22.39 Analysts 14 1yr Cap Gain 3.51% Dividend $1.99 Yield 9.20% 1yr Tot Return 12.71% Dividends are paid Monthly |
 Linn Energy, LLC (LINE) an independent oil and natural gas company, acquires and develops oil and natural gas properties. The company’s properties are located in Rockies, the Mid-Continent, the Hugoton Basin, California, the Permian Basin, Michigan, Illinois, and East Texas in the United States. As of December 31, 2013, it had proved reserves of 6,403 billion cubic feet equivalent; and operated 19,810 gross productive wells. The company was founded in 2003 and is headquartered in Houston, Texas. (Daily Chart) (Weekly Chart) | 11 June 2014 Price $30.04 1yr Target $33.79 Analysts 14 1yr Cap Gain 12.48% Dividend $2.90 Yield 9.65% 1yr Tot Return 22.13% Dividends are paid Monthly |
 Memorial Production Partners LP, (MEMP) through its subsidiary, Memorial Production Operating LLC, engages in the acquisition, development, exploitation, and production of oil and natural gas properties. Its properties consist of operated and non-operated interests in producing and undeveloped leasehold acreage, and interests in identified producing wells principally located in Texas, Louisiana, and offshore southern California. As of December 31, 2012, its total estimated proved reserves were approximately 609 billion cubic feet of natural gas equivalent; and owned interests in 1,671 gross producing wells. Memorial Production Partners GP LLC serves as the general partner of Memorial Production Partners LP. The company was founded in 2011 and is based in Houston, Texas. (Daily Chart) (Weekly Chart) | 11 June 2014 Price $23.08 1yr Target $25.10 Analysts 10 1yr Cap Gain 8.75% Dividend $2.20 Yield 9.53% 1yr Tot Return 18.28% Dividends are paid Quarterly |
 Mid-Con Energy Partners, LP (MCEP) engages in the acquisition, exploitation, development, and production of oil and natural gas properties in North America. Its properties are located in Southern Oklahoma, Northeastern Oklahoma and parts of Oklahoma, and Colorado within the Hugoton Basin in the Mid-Continent region of the United States. The company owns a 75% average working interest in 272 net producing wells, 107 net injection wells, and 61 net wells shut-in or waiting on completion. As of December 31, 2012, its total estimated proved reserves were approximately 13.1 million barrels of oil equivalent. Mid-Con Energy GP, LLC serves as the general partner of Mid-Con Energy Partners, LP. The company was founded in 2011 and is headquartered is Dallas, Texas. (Daily Chart) (Weekly Chart) | 11 June 2014 Price $21.43 1yr Target $25.71 Analysts 7 1yr Cap Gain 19.97% Dividend $2.06 Yield 9.61% 1yr Tot Return 29.58% Dividends are paid Quarterly |
 QR Energy, LP, (QRE) through its subsidiary, QRE Operating, LLC, engages in the acquisition, exploitation, development, and production of oil and natural gas properties in the United States. As of December 31, 2012, the company’s properties consisted of working interests in 4,527 gross producing wells located in Alabama, Arkansas, Florida, Kansas, Louisiana, Michigan, New Mexico, Oklahoma, and Texas. It also had estimated net proved reserves of 56.8 million barrels of oil and condensate; 190.3 billion cubic feet of natural gas; and 10.6 million barrels of natural gas liquids. QRE GP, LLC operates as the general partner of the company. QR Energy, LP was founded in 2006 and is headquartered in Houston, Texas. (Daily Chart) (Weekly Chart) | 11 June 2014 Price $17.68 1yr Target $19.27 Analysts 11 1yr Cap Gain 8.99% Dividend $1.95 Yield 11.03% 1yr Tot Return 20.02% Dividends are paid Monthly |
 Vanguard Natural Resources, LLC, (VNR) through its subsidiaries, engages in the acquisition and development of oil and natural gas properties in the United States. It owns properties and oil and natural gas reserves primarily located in nine operating areas: the Arkoma Basin in Arkansas and Oklahoma; the Permian Basin in West Texas and New Mexico; the Big Horn Basin in Wyoming and Montana; the Piceance Basin in Colorado; South Texas; the Williston Basin in North Dakota and Montana; the Wind River Basin in Wyoming; the Powder River Basin in Wyoming; and Mississippi. As of December 31, 2012, the company had total proved reserves of 152.2 million barrels of oil equivalent, as well as owned working interests in 2,266 net productive wells and approximately 785,085 gross undeveloped acres. Vanguard Natural Resources, LLC was founded in 2006 and is headquartered in Houston, Texas. (Daily Chart) (Weekly Chart) | 11 June 2014 Price $30.85 1yr Target $32.73 Analysts 11 1yr Cap Gain 6.09% Dividend $2.52 Yield 8.16% 1yr Tot Return 14.25% Dividends are paid Monthly |
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