Investing in your favorite oil driller or gold miner is risky business.
Resource companies, like these, go to great lengths. Whether it be mining for gold hundreds (or thousands) of feet underground in South Africa or drilling for oil amidst the rolling sea-swells in the North Sea, it takes a certain ilk to profit in this business.
Investing in these plays harkens the same level of expertise.
Today I want to remind you of a safer approach to resource investing. This approach will keep you ahead of the pitfalls in the resource space and should far-outpace the S&P. Better yet, with more debt ceiling chatter, there may be a way to get in on the cheap…
I'm talking about "midstream" players. These are the companies that transport and process the oil and gas flowing profusely from America's shale patch. It's all part of the "harvest" phase that we've covered before.
Today there's mounting evidence that these players are going to continue to rake in money—by charging a fee for transport of oil and gas—and continue paying solid dividends.
The story is easy to follow, too. With each passing day the U.S. is producing more barrels per day. This simple up-tick in production is creating all sorts of opportunities around the country. All of a sudden there's an unexpected glut of oil in the U.S.
Who profits from this glut? The guys that can move and process the oil.
Same goes for natural gas. With so much of the stuff flooding the market there's plenty of opportunity to process and move it. Propane, Butane, Ethane. . . any company, from Texas to Pennsylvania, that can process this gas stands to make a buck. And better yet, pass some of that buck along to you!
Here's a few of my favorite midstream players (along with their current yield):
- Access Midstream Partners LP (ACMP)* — 4.0%
- DCP Midstream Partners LP (DPM) – 5.7%
- Enbridge Energy Partners LP (EEP) – 7.1%
- Enterprise Products Partners LP (EPD) – 4.4%
- Plains All American Pipeline LP (PAA) – 4.5%
- Williams Partners LP (WPZ) – 6.5%
[*Note, this is the former Chesapeake Midstream. . . a spin off from Chesapeake's ailing energy company]
With more oil and gas flowing—through pipelines, trucks and railways—these logistic companies are in the right spot of this budding market (and the list above is by no means exhaustive, either!)
Remember, production from many of the now-prolific shale plays in the U.S. is just ramping up. More oil and gas, regardless of price, will mean big things for the U.S. midstream sector.
That's great news for us. But it gets even better. . .
First, these midstream companies love to pay consistent dividends. At a time when the Federal Reserve is printing U.S. dollars like Chinese carry-out ads, these stable dividends couldn't come at a better time.
Second, with the latest installment of the debt ceiling taking center stage and a potential market pullback in the cards, now may be a great time to grab some of these companies on a pullback.
Indeed, if any of the midstream players listed above fall in price—due to the fumbling U.S. Congress—there could be a short window of time to pick 'em up on the cheap. That means lower entry price and higher dividend payout.
Getting back to our discussion above, the U.S. midstream sector is one of the safest places to stock some investment cash. A lot of the variables that can plague other resource sectors—dry holes, bad core results, high costs, and overzealous management—don't apply here. Simply put, these are some of the most straightforward resource bets you can make.
Matt Insley
Daily Reckoning
