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Investing in Energy Companies

Two types of energy stocks produce dividends: Major integrated oil and gas companies and the energy master limited partnerships, better known as MLPs. Though major oil companies may be an attractive option, MLPs can be a gold mine for dividend investors, offering some the highest yields with not much more risk than companies offering yields half the size.

The major integrated oil and gas companies, 11 in all, hold the characteristics of good dividend stocks. They’re mature, stable companies, typically with good management, that produce a product necessary to maintain modern civilization.

Appreciating the benefits of energy company investing

All industries need energy, usually oil, to function, and many of the products used today are petroleum-based. When the price of oil goes up, so does the price of nearly everything else, and it’s unlikely to return to previous super-low prices for several reasons:

  • Oil is a nonrenewable energy source. As people consume oil, less is available, and the law of supply and demand naturally drives up its price.

  • Worldwide demand is increasing. As China, India, and many other countries become more industrialized, they need more oil and other sources of energy to fuel their growth.

  • Producers aren’t interested in offering cheap oil. The Organization of the Petroleum Exporting Countries, better known as OPEC, says a reasonable price range to make investing in oil infrastructure to meet growing demand worthwhile is in the $60 to $80 per barrel range.

  • Oil production has reached or is nearing its peak. Unless it occurred already, the world is expected to reach its maximum level of oil extraction sometime in the next decade. After this point, the rate of production goes into a terminal decline. Unless demand drops accordingly, it’ll increasingly outstrip supply, sending prices perpetually higher.

Juicing up your portfolio with energy company stocks

With the price of oil and everything else chipping away at your savings, you may as well tap into those record energy profits yourself by investing in energy companies.

Of the 11 major integrated oil and gas companies, only 8 actually pay dividends, and only half provide a yield exceeding the inflation rate. Due to rising oil and gas prices and a corresponding increase in share price, yields aren’t quite keeping pace with yields of years past. The table below gives you the 8 dividend-paying stocks, plus their yields, ticker symbols, and dividends.

Major Integrated Oil Companies To Consider
Yield as of 12/31/09 Name Ticker Symbol Annual Dividend
5.8% BP plc BP $3.36
5.8% Royal Dutch Shell RDS-B $3.36
5.0% Total TOT $3.23
4.2% Eni Spa E $2.14
3.9% ConocoPhillips COP $2.00
3.7% Repsol YPF REP $0.99
3.5% Chevron CVX $2.72
2.5% Exxon Mobil XOM $1.68
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