Three Must-Own Buys for Oil Income
02/06/2014 7:00 am EST
While we are well aware there will be ups and downs, we believe the long-term price for oil can only go up, and the companies that control oil reserves will do very well, forecasts Briton Ryle in The Wealth Advisory.
The fact that MLPs and Royalty Trusts pay some of the best dividends available today makes them must-own stocks. Here's a look at some of our favorites:
Crescent Point Energy (TSX:CPG)
It was a great year for Crescent Point. It raised annual production estimates at least three times, and it still beat the final estimate for its 2013 exit production rate of 124,000 boe/d. The company expects to drill 604 wells this year, and its 2014 exit production rate is expected to be 135,000 boe/d.
Crescent Point has been crushing earnings expectations for the last three quarters, beating by 57%, 54%, and 40%. Earnings are expected to grow 39% in fiscal 2014, which starts in the April-June quarter.
Crescent Point is now Canada's fourth-largest independent oil producer; it is working the Canadian side of the Bakken shale formation.
We think there's a lot of upside for the shares, and frankly, we won't be surprised if buyout rumors start swirling. We rate the stock a “strong buy” with a $48 target.
What a year it was for Enerplus! The company entered the year looking dicey, and we had put readers on notice that we might be selling the shares. But the company continued to hit or exceed performance milestones. Our patience paid off.
Production was up 8% year over year, and cash flow was up an incredible 45%. Best of all, the payout ratio fell below 100% to 97%. Management deserves a huge congratulations for beating their stated goal. They have returned the company to stability far faster than we thought possible.
The company pays $1.01 a year in monthly installments. We rate Enerplus a “strong buy” under $19.
SandRidge Permian Basin Trust (PER)
The SandRidge Permian Basin Trust paid $0.65 in November, after $0.58 a share in August, and $0.51 a share in May. This is a trend we could get used to. PER drilled 51 wells in the third quarter. It's due to finish its drilling schedule during the first quarter of 2015.
This is an ideal situation for Trust owners (i.e., us) because we get to enjoy rising dividends as production increases. Plus, the addition of new wells should more than offset any decline rates for existing wells. PER has hedged all of its production for 2014. And we should see the payout rise throughout next year.
Ultimately, the Permian Basin Trust is expected to pay out $26 per unit between now and the termination date in 2031. In other words, we should be able to pull 15%-20% a year return for the next two years, before the distributions fall. We rate it a “strong buy” under $15.
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