So Far, the Dividend Is Holding on Fracking Sand Supplier

01/22/2015 5:30 pm EST

Focus: ENERGY

Jim Jubak

Founder and Editor, JubakPicks.com

Plunging oil prices have put energy stock dividends at risk but—as MoneyShow's Jim Jubak illustrates—evidence shows that the damage has not expanded to take in energy MLPs in pipelines and sand for fracking. But how long will it last?

Income investors are intensely watching dividend changes in the energy sector.

Before the plunge in oil prices, energy stocks attracted lots of dividend money because the sector was one of the few places where you could get a 5% return.

Of course, now, plunging oil prices have put those dividends at risk. The damage has been clearest in the oil service sector where SeaDrill (SDRL) cut its dividend completely and where shares of companies such as Ensco (ESV) and Transocean (RIG), now yielding 9.9% and 18.8%, respectively, are trading as if their dividends are in danger. (More on SeaDrill and Ensco in the next few days; both stocks are members of my Dividend Income portfolio.)

Is the damage about to expand to take in energy master limited partnerships in pipelines and sand for fracking? So far, the evidence says No. But that answer is by no means definitive. What we’ve been seeing over the last few weeks has been limited—but significant—increases in dividend payouts by the solid companies in this group.

So, for example, on January 15, fracking sand MLP Hi-Crush Partners (HCLP) announced that it would raise its payout by 8% to 67.5 cents a unit from 62.5 cents. (The record date is January 30 and the payment date is February 13.)

I don’t think this means Hi-Crush is out of danger—or that the shares are about to immediately recover to the $65 range of last September—from the current $37.60 a share price on January 22. There is just the little issue of whether the slowdown in drilling activity in the US oil and natural gas shale geologies will cause a bigger than expected drop in sand volumes and prices. We’ll have a better feel for that when Hi-Crush reports earnings and revenue on February 5.

What I really want to know—as I prepare to collect another 6.95% payout from Hi-Crush—is whether that impairment in the share price is temporary or permanent and how temporary it might be.  Hi-Crush is a member of my Dividend Income portfolio.

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