Time to pile back in? Or wait for the next leg down? How about a measured approach that accommodates both. I’m talking about a responsible way to beat fear of missing out: dollar-cost averaging (DCA), suggests Brett Owens, editor of Contrarian Income Report.
Dollar-cost averaging is more than just an initial fortune builder. It can also build wealth and income streams during messy markets like these.
The key is not overthinking it. Set aside a certain dollar amount every month, and we naturally buy more shares when prices are low (and less when they are dear). This technique can still work today, even if you’re retired or nearing retirement.
Long-term (over the coming years), energy prices will stay elevated because of industry underinvestment. April 2020 was our initial foray into oil. We bought pipeline operator — a/k/a “toll bridge” — ONEOK (OKE), which yielded a terrific 13.2%. Granted, the full dividend payment looked risky then given the precarious state of the world.
But we realized that energy demand was likely to bounce back. OKE muddled through just fine and we have earned total returns of 144% and counting as OKE’s shares bounced back towards 2019 levels.
OKE still flaunts a secure 6.3% dividend with upside as the stock heads towards 2019 highs. Please note that OKE never cut its dividend… the reason it pays less today is that its price has run up so much. Ah, the sweet curse of capital gains!
Still, it’s a fine problem to have. Again, OKE doesn’t care who owned it before. New money earns 6.3%, period. Don’t be afraid to DCA it.
Action to Take: Buy ONEOK up to $80.00.
The Williams Companies (WMB) was our second energy love. The natural gas pipeline play paid 7.7% when we bought it. We’ve enjoyed two dividend raises in almost two years. Shares have rallied but still pay 5%, which is more than I’d have guessed given the roaring bull market in natural gas.
The planet is sizzling and many of the overworked air conditioners are churning through more gas than usual. Meanwhile the European Union is asking countries to cut gas use by 15% (thanks again, Russia). Add it all up and we have natural gas prices at 14-year highs with no end in sight.
We recommend WMB as the safe and secure way to play the bull market in gas. WMB’s 5% dividend is well-funded, to say the least, by gas profits, and will likely rise again next spring. This stock sure didn’t dip for long — let’s buy it.
Action to Take: Buy The Williams Companies up to $40.00.
Weeks after we added Exxon Mobil (XOM) to our bucket we spitballed that shares had 61% upside. Well, we’re already up 83% in just 16 months. Now what? We keep on buying.
The company earned $4.14 per share last quarter. Last quarter! Annualize this number, and XOM has a P/E (price-to-earnings) ratio less than six. Don’t annualize it, and we’re near 10. Either way, this is a dirt-cheap growth stock.
Quarterly revenue is up more than 40% year-over-year. EPS (earnings per share) has nearly tripled since last summer. Yet the stock still yields 3.6% and trades impossibly cheap. As long as energy prices stay high, we are going to keep adding to this position on pullbacks.
Action to Take: Buy Exxon Mobil up to $95.00.
Finally our blue-chip pipeline Kinder Morgan (KMI) hasn’t moved much since we bought it last summer. That’s fine — we can keep building our position. KMI yields 6.2%. Plus, the firm sends a neat 1099 rather than a messy K-1 at tax time.
Action to Take: Buy Kinder Morgan up to $19.50.
Over the next five years, our these energy dividend stocks will be the envy of income investors.Again, they could drop in a serious recession. But if we look out three to five years, each of these elite energy stocks will likely trade higher than today. It may not be a smooth ride. Which is perfect for dollar cost averaging.
