67 WALL STREET, New York - August 23, 2012 - The Wall Street Transcript has just published its Investing Strategies Report offering a timely review of the market. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Investing in Emerging Markets - Investing in China - Natural Resources - Emerging Middle Class
Companies include: Royal Dutch Shell (RDS), Alerian MLP Index (AMLP) and many others.
In the following excerpt from the Investing Strategies Report, the dividend growth investing expert Thomas Cameron gives current investment advice and top picks:
TWST: When we spoke last year, you told us Dividend Assets Capital invests in two types of companies. Would you go over these two types of companies again for us, and tell us why you chose them?
Mr. Cameron: First, we invest in companies with strong dividend records as a means of finding good earnings growth, low debt ratios and expert management teams with robust products and services.
Second, and more important to this conversation, we invest in midstream energy master limited partnerships, or MLPs, which specialize in the pipeline transportation of oil and natural gas products throughout the United States. As of Aug. 1, 2012, in the last one-year, three-year, five-year and 10-year periods, MLPs have outperformed the S&P 500, and make cash payouts handsomely above the reported S&P 500 Index's numbers. In addition, a portion of MLP annual payouts are tax deferred until the MLPs are sold.
The MLPs we follow are mainly owners and operators of midstream facilities that transport oil, natural gas and processed liquid substances. Many also own oil, gas and petroleum-based product storage facilities. They may seem boring, but the most-followed MLP industry index, Alerian, AMZ, has often outperformed the S&P 500 Index.
In addition, their annual cash distributions have greatly exceeded the return from U.S. Treasuries and other investment-grade corporate bonds year after year. This year, 10-year Treasuries are yielding approximately 1.6%, while the average MLP distribution in the Alerian Index is nearly 6% with many exceeding that level. Most of our MLPs increase their payouts each year, this year by an average of over 9% per year.
TWST: Would you tell us more about the technology behind the MLPs?
Mr. Cameron: The United States' pipeline mileage covers most of the U.S., and more pipelines are being built to new areas of oil and gas production in Texas, the Dakotas and the Appalachian Mountains.
Current hydraulic fracturing, or "fracking" as it has come to be called, has taken a lot of guesswork out of the drilling process and made it more accurate and efficient than ever before. New technology allows companies to pinpoint the depth of shale formations. Then, crews pump pressurized water, sand and chemicals to the formations to open up fractures and get the oil or gas to the surface. With these improved technologies, companies can drill with equipment that allows for fracking in both vertical and horizontal directions, making the drilling more efficient than simply just going down straight, and at the bottom, hoping that we're going to get oil or natural gas. Now, oil and gas are routinely found using this technology.
Since major drilling for oil and gas are mainly in Texas, the Dakotas and the Appalachian Mountains, we need thousands of miles of new pipelines to connect with existing pipelines that then will deliver oil and gas to the end-user destinations. I believe that building these pipelines will require hundreds of thousands of workers from fabrication to installation, as well as to support the needs of these workers with housing, food and other necessities. We believe building the U.S. toward energy independence is going to provide a very strong boost to the U.S. economy. In our view, investing in that effort is good on many levels.
In the U.S., the production of natural gas has rapidly become so gigantic compared to what it used to be when we had just years of known supply of natural gas. We now have more than 100 years of known natural gas reserves. As a result of that, the price of natural gas per million Btu has gone down from about $13 in summer 2008 to the current $3. At one point, a few months ago, it went down to about $1.80 because there was so much natural gas being produced by the system. Now, the price has gone back up. So it's now above $3 per million Btu. I believe it will continue to go even higher.
TWST: How does that translate into making MLPs a good investment?
For more from this interview and many others, visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.