15 Investment Opportunities in the MidStream/Infrastructure Industry

Posted by on

Companies operating in the midstream and infrastructure category perform some of the vital functions in the global energy industry.While the infrastructure firms provide the required infrastructure facilities for the industry the midstream companies process, store, market and transport commodities such as crude oil, natural gas, etc. Hence investors looking to add some exposure to the energy sector can consider investing in the midstream & infrastructure firms.

This year the energy consultancy PFC Energy included a separate  ranking for this category in its annual ranking of top energy firms. This list offers an excellent starting point for further research into this industry.

Click to enlarge

Source: PFC Energy 50

The Top 15 Midstream/Infrastructure companies are listed below with their tickers and current dividend yields:

1.Company: Enterprise (EPD)
Current Dividend Yield: 5.16%
Country: US

2.Company: TransCanada (TRP)
Current Dividend Yield: 3.97%
Country: Canada

3.Company: Enbridge (ENB)
Current Dividend Yield: 3.04%
Country: Canada

4.Company: Kinder Morgan (KMP)
Current Dividend Yield: 5.43%
Country: US

5.Company: El Paso (EP)
Current Dividend Yield: 0.15%
Country: US

6.Company: Williams Companies (WMB)
Current Dividend Yield: 3.63%
Country: US

7.Company: Snam (SNMRY)
Current Dividend Yield: 7.52%
Country: Italy

8.Company: Oneok Partners (OKS)
Current Dividend Yield: 4.34%
Country: US

9.Company: Plains All American Pipeline (PAA)
Current Dividend Yield: 5.35%
Country: US

10.Company: Energy Transfer Partners (ETP)
Current Dividend Yield: 7.27%
Country: US

11.Company: Megellan Midstream Partners (MMP)
Current Dividend Yield: 4.87%
Country: US

12.Company: OGE Energy Corp (OGE)
Current Dividend Yield: 2.92%
Country: US

13.Company: Buckeye Partners  (BPL)
Current Dividend Yield: 6.55%
Country: US

14.Company: Boardwalk Pipeline Partners (BWP)
Current Dividend Yield: 7.66%
Country: US

15.Company: MarkWest Energy Partners (MWE)
Current Dividend Yield: 5.30%
Country: US

Note: Dividend yields noted are as of Jan 30, 2012

Disclosure: No Positions

The World’s Oil Reserves by Country

Posted by on

The world’s oil reserves by country is shown in the chart below. Saudi Arabia, Venezuela, Canada, Iran and Iraq hold the top five reserves as a percentage of the world’s total as of January 1, 2011. It is interesting that Canada’s tar sands puts the country in the top five list ahead of even Russia. With the U.S. holding less than 2% of the world’s reserves, the country will continue to depend on foreign oil imports for the foreseeable future despite any politician’s talk of reducing the U.S. dependence on foreign oil.

Click to enlarge

 

Source: International Energy Outlook 2011, U.S. EIA

Related ETFs:

United States Oil Fund (USO)
United States Gasoline Fund (UGA)
PowerShares DB Oil Fund (DBO)

Disclosure: No Positions

Deleveraging by US households Delayed

Posted by on

One of the major reasons for the credit crisis of 2008 was US consumers over extending their debt levels. All types of personal debts such as credit card debt, mortgages, auto loans, home equity loans and others reached historical levels before the credit bubble burst. With stagnant rises in wages for years the debt to income ratio was unsustainable. After the credit crisis, US households started the painful process of deleveraging in order to repair their balance sheets. However recent data suggests that US consumers are slowly going off the deleveraging path and are taking on more debt.

From an article titled “Credit card use is on the rise” published by CNNMoney last month:

Credit cards are making a comeback.

At the end of 2008, more consumers were using debit cards than credit cards but now that trend has reversed, said Silvio Tavares, senior vice president at First Data, which processes card transactions for 4.1 million merchant locations.

“Credit is back in favor,” he said. “Consumers have spent the last couple of years de-leveraging and reducing credit card use, but during the past month — and since April [of this year] — they’ve been using their credit cards more and are starting to return to pre-recession buying habits.”

The personal savings rate which increased from 2008 declined again in 2011 as shown in the chart below:

In addition, the pace of deleveraging by consumers seems to have reduced further last year according to an Investment Strategy Special 2012 Outlook report by AXA Financial. This is because consumers used their savings to acquire financial assets instead of paying down their debt. Also while households continued to pare their mortgage debt they actually piled up new consumer debt. This is in line with the sharp increase in consumer debt reported by the Fed in the monthly consumer finance report.

The AXA report further added:

Growth in 2011 has therefore been boosted by a drop in the savings rate, at the cost of delaying the return to healthy household balance sheets. If this growth sweet spot leads to improved business and household confidence, a virtuous circle could ensue, which could end up lifting the housing market from its current stagnation and alleviate the negative equity plague. On the other hand, delaying the deleveraging of households prolongs the vulnerability of the US economy to external shocks. As the European crisis drags on into 1H12, US banks may well be forced to tighten their credit conditions and return households to their previous deleveraging path.

Hence while the US economy is improving in the short-term, a sustained growth to prosperity in the long-term requires consumers to deleverage further and not take on additional debt. Going back to previous ways of gorging on easy credit is not healthy for the both the consumer and the economy.

Related:

Consumer Spending in U.S. Stalls (Bloomberg)

The World’s Top 20 Natural Gas Reserves by Country

Posted by on

The U.S. has the fifth largest natural gas reserves in the world as shown in the chart below. The top five countries – Russia, Iran, Qatar, Saudi Arabia and the U.S. – account for over 60% of the world’s total reserves:

Click to enlarge

Source: International Energy Outlook 2011, U.S. EIA

Related ETF:

U.S. Natural Gas Fund (UNG)

Disclosure: No Positions

Avoid Companies Buying Their Own Stocks

Posted by on

Stock buybacks by U.S. companies has reached record levels. Flush with billions in cash many companies have figured out that the best way to spend those funds is to simply buy their own shares.

The following chart from a recent Wall Street Journal article shows the gradual rise in share buybacks since the market lows of 2009:

Click to enlarge

From the article:

Among companies in the Standard & Poor’s 500-stock index, repurchase spending totaled at least $437 billion last year, a 46% increase from 2010, estimates Howard Silverblatt, senior index analyst at S&P.

Share buybacks rarely benefit shareholders. Instead of paying dividends or making capital investments, companies take the easy way and implement share buybacks.Unlike other countries, the phenomenon of companies buying and sometimes trading in their own shares is very high in the U.S. Short-term mentality of managements, stock options and other factors drive companies to boost stocks price at all costs including spending excess cash on the balance sheet on share buybacks.

The reason usually given by managements for share buybacks is that the stock is undervalued. But in reality it just shows that managements are unable to find better uses for the cash. Just like any other investor, companies also cannot accurately determine if their stock is undervalued and also they cannot predict the future direction of the stock. Despite the odds of being right so negligible, companies buy their own shares anyway hurting shareholders. So generally it is a wise idea to avoid companies that implement share buybacks.

A recent article by CNBC confirms the theory that most share buybacks don’t benefit shareholders. From the article titled “Most Share Buybacks Don’t Pay Off for Investors“:

With cash at record levels, stock buybacks are an increasingly popular way to use free cash flow.

Investors often equate buybacks with management’s belief that the company is undervalued by the market, and purchases can significantly affect the performance of a company stock if the timing is right. But Thomson Reuters’ data shows that’s not always the case.

According to the report, out of 380 companies in the S&P 500 that repurchased shares in at least five of the quarters, 84 companies bought shares when the stock price was high, and only 60 firms were able to buy low.

In addition, 72 companies saw poor returns within a year following share repurchases, versus 57 that saw good results.

The findings point to a combination of bad market timing as well as policies that increase buybacks when companies have more free cash flow.

“This may be partially explained by the need for officers of public companies to make some use of the cash on hand, including keeping less of it due to the possibility of being taken over,” says the report.

Very few companies that have implemented share buybacks have seen their share prices rise consistently and benefit investors. International Business Machines Corp. (IBM) is one company that I can think whose share buybacks has benefited investors. Last October a Bloomberg article noted that IBM plans to spend $50 billion on buybacks through 2015.

Disclosure: No Positions