Previous articles compared the overall market to baskets of specific types of stocks. One such basket was multinational large-cap stocks which benefit from a falling dollar and a strong global economy. The second basket of stocks that was created was made up of regional bank stocks paying a dividend greater than 4 percent. This group has been extremely weak lately, due to potential bad mortgage exposure and a slowing housing market.
The chart below compares a basket of energy stocks paying dividends greater than 5 percent to the S&P 500 Index. The red line in the middle pane represents this basket of stocks. The performance mapped out in the chart does not take into account the dividends paid out to shareholders.
The lower pane in the chart shows the spread ratio, energy dividend stocks divided by the S&P 500. There isn't a lot of information in the spread ratio, because almost all energy stocks have outperformed since the beginning of the year. However, the chart below shows the ratio between this basket of stocks and that of the Oil Service ETF - OIH.
This chart clearly shows that these companies, that pay strong dividends, outperform other oil related stocks when there is profit taking in the overall energy sector. In essence, the dividends paid cushion the blow and shows that the intentions of investors who purchased these types of energy stocks were looking for income along with price appreciation. This income from dividends helps provide a silver lining and gives investors greater holding power. Below is a similar chart comparing these stocks to the price of light sweet crude.
This chart shows that these companies really outperformed,green vs red trend-lines, when the price of oil was declining in the second half of 2006. These stocks could again start to outperform if the price of oil starts to consolidate. If crude continues to go higher, these stocks should participate in price along with paying a dividend. Below are a few charts showing the recent price performance of the 15 companies used to make up this basket.
Stocks like these are not a replacement for every stock in a portfolio, but one or two of these companies can provide exposure to the energy sector along with providing some level of fixed income. It is very important to watch the law with regards to taxation of dividends and partnerships. Changes in any tax law could cause a change in trend for companies likes these. Descriptions of the 15 companies used to create this basket are provided at the bottom of this article.
Below are updated charts of the regional bank dividend basket and the multinational stock basket compared to the S&P 500 Index.
KMR - Kinder Morgan Management, LLC is a limited partner in Kinder Morgan Energy Partners, L.P., and manages and controls its business and affairs pursuant to a delegation of control agreement. As of December 31, 2006, the Company owned approximately 27% of Kinder Morgan Energy Partners, L.P.’s limited partner interests. Kinder Morgan Energy Partners, L.P. is the owner and operator of an independent refined petroleum products pipeline system in the United States.
EEQ - Enbridge Energy Management, L.L.C. (Enbridge Management) is a limited partner in Enbridge Energy Partners, L.P. (the Partnership) through ownership of i-units, a special class of the Partnership's limited partner interests. The Company manages the Partnership's business and affairs under a delegation of control agreement, the Partnership and its general partner, Enbridge Energy Company, Inc. (the General Partner). The General Partner is an indirect, wholly owned subsidiary of Enbridge Inc. (Enbridge), an energy company located in Calgary, Canada.
APL -Atlas Pipeline Partners, L.P. is a limited partnership and a midstream energy services provider engaged in the transmission, gathering and processing of natural gas. The Company provides natural gas gathering services in the Anadarko Basin and Golden Trend area of the mid-continent United States, and the Appalachian Basin in the eastern United States. It provides natural gas processing services in Oklahoma. The Company also provides interstate gas transmission services in south eastern Oklahoma, Arkansas and south eastern Missouri.
EEP - Enbridge Energy Partners, L.P. (Partnership) owns and operates crude oil and liquid petroleum transportation and storage assets, and natural gas gathering, treating, processing, transportation and marketing assets in the United States. As of December 31, 2006, the Partnership’s portfolio of assets included approximately 4,900 miles of crude oil gathering and transportation lines and 24.5 million barrel of liquids (Bbl) of crude oil storage and terminaling capacity; natural gas gathering and transportation lines totaling approximately 11,000 miles; nine natural gas treating and 17 active natural gas processing facilities with an aggregate capacity of approximately 1,800 million cubic feet per day; trucks, trailers and railcars for transporting natural gas liquids, crude oil and carbon dioxide, and marketing assets that provide natural gas supply, transmission, storage and sales services.
KMP - Kinder Morgan Energy Partners, L.P. (KMP) owns or operates approximately 26,000 miles of pipelines and approximately 150 terminals. The Company's pipelines transport more than two million barrels per day of gasoline and other petroleum products, and up to seven billion cubic feet per day of natural gas. The Company operates through four segments: Products Pipelines, Natural Gas Pipelines, CO2 and Terminals.
TPP - TEPPCO Partners, L.P. (TEPPCO) is a common carrier pipeline of refined products and liquefied petroleum gases (LPGs) in the United States. In addition, the Company owns and operates petrochemical and natural gas liquids (NGLs) pipelines; TEPPCO is engaged in crude oil transportation, storage, gathering and marketing; it owns and operates natural gas gathering systems, and TEPPCO owns interests in Seaway Crude Pipeline Company, Centennial Pipeline LLC, Mont Belvieu Storage Partners, L.P., Jonah Gas Gathering Company and an undivided ownership interest in the Basin Pipeline. TEPPCO operates in three business segments: transportation, marketing and storage of refined products, LPGs and petrochemicals (Downstream Segment); gathering, transportation, marketing and storage of crude oil and distribution of lubrication oils and specialty chemicals (Upstream Segment), and gathering of natural gas, fractionation of NGLs and transportation of NGLs (Midstream Segment).
BPL - Buckeye Partners, L.P. (the Partnership) is a master limited partnership. The partnership is principally engaged in the transportation, terminal ling and storage of refined petroleum products for integrated oil companies, refined petroleum product marketing companies and end users of petroleum products. The Partnership also operates pipelines owned by third parties under contracts with integrated oil and chemical companies, and performs pipeline construction activities, generally for these same customers. Buckeye GP LLC is the general partner of Buckeye Partners. The Partnership operates its business through three segments: Pipeline Operations, Terminal ling and Storage and Other Operations.
OKS - ONEOK Partners, L.P., formerly Northern Border Partners L.P., owns and manages natural gas gathering, processing, storage, interstate and intrastate pipeline assets, natural gas liquids (NGLs) gathering and distribution pipelines, and storage and fractionators, connecting much of the natural gas and NGL supply in the Mid-Continent region with various market centers.
MWE - MarkWest Energy Partners, L.P. (MarkWest Energy) is a master limited partnership engaged in the gathering, transportation and processing of natural gas; the transportation, fractionation and storage of natural gas liquids (NGLs), and the gathering and transportation of crude oil. MarkWest Energy is a processor of natural gas in the northeastern and southwestern United States, processing gas from the Appalachian Basin, and from East Texas, Gulf Coast and Michigan.
SXL - Sunoco Logistics Partners L.P. (the Partnership) is principally engaged in the transport, terminalling and storage of refined products and crude oil, and the purchase and sale of crude oil in 12 states located in the Northeast, Midwest and Southwest United States. The Partnership’s business comprises three segments: Eastern Pipeline System, Terminal Facilities and Western Pipeline System.
ETP - Energy Transfer Partners, L.P. (the Partnership) is primarily engaged in the natural gas midstream and transportation and storage business through its operating subsidiary, La Grange Acquisition, L.P. The Company is also a retail marketer of propane in the United States through its operating subsidiaries, Heritage Operating, L.P. and Titan Energy Partners, L.P. The Partnership's midstream, transportation and storage businesses own and operate approximately 12,000 miles of natural gas gathering and transportation pipelines, three natural gas processing plants, 14 natural gas treating facilities and three natural gas storage facilities located in Texas.
TLP - TransMontaigne Partners L.P. (Partners) is a limited partnership formed by TransMontaigne Inc. The Partnership is a refined petroleum products terminaling and pipeline company with operations in Florida and Midwest.
MMP - Magellan Midstream Partners, L.P. is principally engaged in the transportation, storage and distribution of refined petroleum products. As of December 31, 2006, the Company’s portfolio consisted of a 8,500-mile petroleum products pipeline system, including 45 petroleum products terminals, serving the mid-continent region of the United States, referred to as the petroleum products pipeline system; seven petroleum products terminal facilities located along the United States Gulf and East Coasts, referred to as the marine terminals; 29 petroleum products terminals located principally in the southeastern United States, referred to as the inland terminals, and a 1,100-mile ammonia pipeline system serving the mid-continent region of the United States.
NS - NuStar Energy L.P., formerly Valero L.P., provides terminalling services for crude oil and refined petroleum products to the producers of crude oil, integrated oil companies, chemical companies, oil traders and refiners.
PAA - Plains All American Pipeline, L.P. (Plains) is engaged in the transportation, storage, terminalling and marketing of crude oil, refined products and liquefied petroleum gas, and other natural gas-related petroleum products (LPG). The Company operates through three segments: transportation, facilities and marketing.