While it is impossible to time the stock market, or any asset class for that matter, a reliable sniper’s tactic can be used to assemble a high-dividend-yield portfolio of solid oil and natural gas companies such as BP PLC (NYSE: BP), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP), and Royal Dutch Shell (NYSE: RDS-A), among others.
As Neil Young might croon about investing for the long term in major energy securities under the present market conditions, “In the field of opportunity, it’s plowin’ time again.”
United States Oil (NYSE: USO), a leading exchange traded fund of oil, is down more than 38% in 2014. Individual stocks in the sector have followed that trajectory.
Royal Dutch Shell, the second biggest energy firm in the world behind only ExxonMobil (NYSE: XOM), has fallen nearly 15% over the last six months of market action. The second largest in Europe behind only Royal Dutch Shell, BP PLC is trading lower by well over 14% for the year. ConocoPhillips has augured by more than 16% for the last half year.
When the share price of a publicly traded company that pays a dividend falls, the yield rises.
This is where the sniper’s tact comes into play to build long-term holdings featuring high-yield oil and natural gas companies. Snipers will sometimes set the crosshairs on a set position when expecting traffic. When a target is acquired, the trigger is pulled: simple, easy, proven, and highly accurate. For investors, the same can be done with the dividend yield.
If the dividend yield hits, say, 4%, more than twice the yield of the average S&P 500 stock, “…it’s plowin’ time again” for many energy stocks as the chart below shows:
|Stock||Dividend Yield||Dividend Growth Rate 3 Years||Dividend Growth, Consecutive Years||Average Dividend Yield for S&P 500 Member|
|BP PLC||6.09 percent||37.6 percent||2 years||1.86 percent|
|Chevron||3.79 percent||11.2 percent||28 years||1.86 percent|
|ConocoPhillips||4.11 percent||7.9 percent||1 year||1.86 percent|
|ExxonMobil||2.95 percent||12.2 percent||31 years||1.86 percent|
|Royal Dutch Shell||4.25 percent||1.9 percent||2 years||1.86 percent|
Source: Finviz.com, Dividend.com, and multpl.com
The role of the dividend should never be underestimated in the total return for a publicly traded equity.
According to investing legend Jack Bogle, founder of the Vanguard family of mutual funds, in his book Enough, dividend income has provided around half of the historic return for the stock market.
When the market is down, dividend income is the only positive return. Dividend income is also a telling indicator about the financial strength of a company, and how it treats its shareholders. Looking at the high yield and the growth history of many energy firms, buying based on pulling the trigger at a certain dividend yield should be very rewarding for long-term investors.
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