01/16/2004 12:00 am EST
"The most important words in investing are 'the miracle of compound interest'," says Richard Young, editor of Intelligence Report. "By focusing on cash flow, I have never taken a serious financial setback. I have more patience than Job." Here, he suggests some yield-oriented energy and resource plays.
"Kinder Morgan Energy (KMP NYSE) is up about 30% in less than a year and still yields 6%. Last year's payout was $2.36/share. This year's will be $2.64/share. Earnings will be up again next year, so it s fair to look for an additional gain in the payout. Remember, as a master limited partnership, the company does not pay corporate taxes. Instead, most of the company's earnings must be paid out to you. And better yet, some of each year's distribution is tax deferred. Hold the shares in your personal portfolio, not in your IRA.
"Only a few years ago, management at Plum Creek Timber (PCL NYSE) believed the company had perhaps 150,000 acres of land that offered value exceeding that of pure timberland. Today, the view is that it is over 1.3 million acres. As such, the company has developed a management team to help shareholders realize the full potential of this land. The key to Plum Creek is that it is a company with 8 million acres of land, offering both a tax-advantaged dividend and the potential for long-term capital appreciation. Plum Creek's terrific assets grow biologically in value every day. The company generates significant cash flow and has a strong balance sheet. And Plum Creek offers an enticing 5% yield. Over the past 12 months, you have achieved a 23% total return. Continue to build your holdings in this outstanding portfolio counterbalancer.
"Alliance Resource Partners (ARLP NASDAQ) is a master limited partnership involved in the production and marketing of coal. Over the last 36 months, you have averaged a 31% average annual total return. Last year, approximately 88% of the company's sales were made under long-term contracts, with maturities ranging from 2002 to 2012. Management owns about 45% of the total common and subordinated outstanding units, bringing management's interests and yours in close alignment. The partnership distributions to unitholders are generally not taxable to the extent of a unitholder's tax basis. In that, the majority of the company's distribution to you annually is not subject to current income taxes, you receive a significant enhancement in your after-tax yield. Your current tax-advantaged yield is 6.7%. Continue to build holdings in your personal, not IRA, portfolio.
"Piedmont Natural Gas (PNY NYSE) is just the sort of stock that traders, speculators, and know-it-alls eschew. The story just couldn't be more boring. All of which, of course, makes the Piedmonts, Alliances, and Plum Creeks, the types of investments of which I am most fond. Over the past 24 months, your total return has averaged over 14%. Piedmont is the second-largest gas utility in the Southeast. Piedmont has increased its dividend to you every year since 1978. The current yield is 4%, and the company's internal customer growth rate is 4%, which makes an 8% average annual total return from this conservative natural gas utility a reasonable bet. If you are retired or saving for retirement in an IRA, Piedmont Natural Gas is an ideal ally. Continue to build your position in this fine North Carolina-based company."