2 High-Yielding Energy Picks

09/14/2011 1:27 pm EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

These two plays, a utility and an MLP, continue to perform well and would have been good buys even without the correction, but Roger Conrad of Utility Forecaster isn’t complaining about the discount, as he explains in this exclusive interview with MoneyShow.com.

If you really have the guts to invest in this kind of market, Roger Conrad says he has some bargains for you. Hi Roger.

Hi Howard.

Now again, the predicate of that is for people who really are willing to put up with the risk, which aren’t too many people these days, right? For those people, you say this is not a bad time to nibble at some high-quality type of stocks.

Absolutely. I think the best investment decision many people are going to make in the next several weeks will be just to hold what they have, particularly if they’re holding positions in strong dividend-paying companies.

It’s not easy, obviously. Even the strongest companies have taken it on the chin. We saw what happened in 2008, and I think maybe in 2008 it wasn’t so psychologically difficult because at that point we were blissfully ignorant of how far things can fall.

Now people are all too aware, and a lot of people did get burned, maybe they held all the way down and sold at the bottom, became a little bit much to bear. So psychologically, this is very, very difficult in the middle of 2011.

I really think things are more like 2010 here. I’ll change my mind if I see the economy really slipping into recession, but that’s not in the evidence right now.

As history shows, you don’t really have to anticipate a recession in order to avoid getting out in time to avoid the worst of the market damage that occurs when you have these recessions. You can really wait until you see the evidence.

It’s not there now and that’s a situation that’s a lot more like 2010 than it was in 2008. In 2010, things went down, but there were tremendous opportunities to lock in very good yields at very low prices and just watch your money grow from there. Again, I think that’s where we are today.

Okay, so for people who do have that kind of courage, what kinds of…can you give us a couple of names of really high-quality stocks that pay good dividends that you think are at good prices now?

Well I think the master limited partnerships have certainly been knocked down, partly because…

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Along with energy prices as well.

Along with energy prices, even though a lot of them don’t have a direct exposure in energy prices. So take a look at some of the master limited partnerships like Enterprise Products Partners (EPD).

That’s been one of your favorites for a long time.

One of my favorites for a long time. It’s always a good one to pick up when the price comes down.

Now, they run pipelines, or do they?

A lot of what’s fee-based assets. So in other words, pipelines, processing facilities, various assets that just generate fees from very credit-worthy customers, such as super oils, which are actually rated higher now than Uncle Sam, many of them.

So you get that type of credit. You’ve got very, very low borrowing rates, very low cost of capital for these companies. And for Enterprise, it can basically just go out there, pick projects, almost completely contract them in advance, raise the money very cheaply.

It adds to cash flow, and it adds to dividends. They’ve increased dividends 29 quarters in a row. That covers you through 2008, when oil prices went from $150 to less than $30 in just a few months, so it covers a lot of territory and it really shows you how bulletproof a company like that is.

One more, please, very quickly.

Well, I believe in owning a mix of things. I think you don’t want to have all in one particular sector, particularly if you’re investing for income. Again, you have to stick around.

So I would take a look at some of the utilities out there. Southern Company (SO), for example, a big power utility in the Southeast.

A lot of these companies have been thought of as interest-rate sensitive in the past. They’re pretty much economic-growth sensitive. The formula for growth for utilities is capital spending plus favorable regulation equals higher cash flow, higher dividends, and a higher share price.

This one has it, I think, made for that. Again, a very stable part of the country that continues to grow. It now looks like their nuclear power plant, the Vogtle additions there are going to get the relicensing by the end of the year, so that’s a big capital investment. It’s going to go through into earnings, dividends, and share price.

So again, a very nice addition. You put those two in your portfolio, you’re not going to be sorry.

Do you own either or both of those personally or professionally?

I do own professionally both of them. I own Southern Company from my own account. I have for about 20 years now.

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