top-energy-stocksWhen investing for retirement, you want to hold stocks that provide capital preservation and dividend payments rather than going for home-run growth stocks.  Your risk profile is different in retirement and you cannot afford to gamble your life savings away. That’s why top  energy stocks are a core holding for any retirement investor.

The world will always need energy, and fossil fuels in particular. I don’t care what the environmentalists claim about the world running out of oil.  There’s plenty of it.  Furthermore, aside from nuclear, there is no other energy source on the planet that is as efficient as fossil fuel —   and nuclear isn’t going to take over the world anytime soon, thanks to those same environmentalists.

Solar doesn’t work either, as evidenced by the billions invested in a space that has so far yielded less than 1% of the world’s energy production.  Wind is in the same boat.  You can stack every wind corridor in the world with giant fans, but it will always cost more to make the darn fans than the energy they’ll produce.

That’s why I suggest you stick with energy plays that derive from fossil fuels in your retirement investing.  I also like diversified holdings, so if something happens, your whole investment in a sector doesn’t blow up.  Here are three such choices.

Top Energy Stocks for the Retirement Investor

1. Plains All American Pipeline (NYSE:PAA) is a geographically diversified oil and natural gas transport company. It has a massive footprint of some 17,000 miles of pipe, stretching through Texas, Montana, North Dakota, Utah, Colorado, Oklahoma, the Rocky Mountains, the Gulf Coast and into Canada.  It owns 11 plants through which it can process this energy, and has the capacity for 74 million barrels of oil and 97 billion cubic feet of natural gas.

I like Plains All American stock because it has a balance sheet that allows investors to sleep well at night.   Its $6.8 billion in debt is not generating expensive interest to pay, and it has some half a billion dollars in cash.   It presently pays a $2.52 dividend, which translates to a 4.3% yield.

2. SPDR S&P Oil & Gas Equipment and Services ETF (NYSE:XES) is another diversified play.  You can’t have energy without energy infrastructure, and an ETF with a basket of energy infrastructure plays protects you against any one (or several) of them imploding.

It’s also an equal-weight basket, meaning each stock has the same amount invested in it.  Most ETFs are not equal-weight, with the largest companies occupying the largest positions in the basket.  That means they control more of the ETF’s fate than smaller companies. Equal-weight ETFs are less volatile and less reliant on a handful of stocks.

SPDR S&P’s dividend is small, at 0.65%, but this is a play for modest capital gains.

3. ConocoPhillips (NYSE:COP) is not everyone’s first choice when it comes to oil explorers and producers, but it probably has more room to run than its competitors.  It has a solid balance sheet with $32 billion in cash and long-term investments, and just $19 billion in debt, which is costing the company only 3.3% interest annually, on average.

When examining explorers/producers, I look at the companies’ ability to generate free cash flow.  ConocoPhillips put up $8.4 billion of FCF in FY12, but the past two years it’s been close to zero.  That’s because it has been investing in infrastructure to remain competitive.  FCF should begin to pop again soon.

All the while, it keeps paying dividends, with a payout of $2.76 per share, representing a 3.2% yield.

Each of these stocks provide capital preservation and nice dividend payments. If you’d like energy to be part of your portfolio – and you probably should – these are worth a close look.

Mid-East Oil No More!

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Published by Wyatt Investment Research at