Although crude oil is down from its recent high of almost $105 per barrel, even in the $90s, oil and fuel production will remain highly profitable for the energy sector. If you are looking for an income-focused way to play higher energy prices, check out the State Street Energy Select Sector SPDR Premium Income ETF (XLEI), suggests Tim Plaehn, editor of The Dividend Hunter.
I expect oil prices to stay elevated. But upstream energy producers are very profitable with oil even at $70. If the price stays in a range of $80-to-$100, profits will be massive.
State Street Energy Select Sector SPDR Premium Income ETF (XLEI)
On the downstream end, refiners’ profits are at record levels and should stay high for the foreseeable future. Two factors are causing shortages of different fuel types, especially diesel and jet fuel. Producers are shipping oil out of the Persian Gulf, but since hostilities started, they have not shipped much refined product. Also, the Ukrainian attacks on Russian refineries have forced Russia to keep its diesel fuel in-country, stopping exports.
With this energy-sector background, let’s look at a high-yield way to invest. The State Street Energy Select Sector SPDR ETF (XLE) holds the stocks in the S&P energy sector. But about a year ago, State Street developed covered call funds for each of the Select Sector SPDRs. These ETFs own shares of the sector SPDRs and sell call options on those shares to generate cash flow to pay dividends.
XLEI is the covered call ETF with XLE as the underlying asset. XLEI pays monthly dividends and has a recent indicative yield of 15.7%. The year-to-date total return is 30.5%, and the one-year return is 36.9%.
Recommended Action: Buy XLEI.
