Buy for Dividends and Growth

11/28/2007 12:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

If you are looking for high yields plus the opportunity for growth, Jack Adamo, editor of Insiders Plus, has an oil buy for you.

Our safest bet among the new recommendations is a high-income pipeline L.P. We already have two of those in our income portfolio; so, it may seem risky to put a third in, but as I've learned over the years, when the Insiders are buying, just follow their lead. Diversification for its own sake, and without regard to forces in the economy, is a formula for mediocre results. We've done extremely well in recent years by ignoring the academics.

NuStar Energy L.P. (NYSE: NS) is a pipeline company that was spun-off from Valero Energy a few years back. Like all LPs, it is not taxed on the corporate level, as long as it pays out a statutory percentage of its income in dividends. The company has 65 terminals that provide storage and handling services for crude oil, petroleum products, specialty chemicals and other liquids; and offers ancillary services, such as, tug assistance, launch, and emergency response services.

In addition, it recently acquired facilities for refining and transporting asphalt. Asphalt prices are likely to rise, as more of the heavy crude from which it is made is refined into lighter products, like gasoline. Pipeline transportation and refining fees almost always rise when the cost of the transported product does.

NuStar has been around for nearly seven years, during which time its dividend has steadily risen, and nearly doubled. The total return on NuStar units since their issuance is averaging more than 18% compounded. No wonder a director has bought more than $6 million worth of the stock. In the last seven months, William Greely has purchased over 96,000 shares of the LP, at an average cost of about $65 each. He also bought a ton of the pipeline's general partner's stock, but unlike those purchases, we can get LP units about 13% cheaper than he paid for them. They are trading a few pennies above $57.

Whatever Greely sees ahead, I want to be part of it; so should you. While I'm putting this company in the income portfolio, you shouldn't hesitate to buy it for total return. NuStar Energy L.P. is a buy up to $61. Income investors should take a standard 5% position in their income portfolios.

Incidentally, if you don't need the current income, you may buy units of the general partner, as an alternate investment. NuStar GP Holdings (NYSE: NSH) has a lower dividend, but receives an increased share of profits over the long haul. That might give you more bang for your buck in the long term. Personally, I like the dividends in my account each quarter.

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