If you invested in energy stocks during the 2010s, only to see oil prices go from $50 to $100 – and back again…then you know how erratic the sector can be.
The bad news is that it’s not just energy stocks: Volatility is here to stay for the market in general. I mention this because I’ve talked a lot about income investing lately. And energy is certainly a place to find high yields. In fact, many energy investments HAVE to pay high yields due to their tax structure, such as the master limited partnerships (MLPs).
But as attractive as a high dividend yield sounds, chasing dividend yields alone can be downright dangerous.
Stocks are not like Treasury bonds or a savings account: There’s no guarantee that you will get your money back. There’s also no guarantee that company will continue paying a dividend. If you choose poorly, you could lose your capital as the stock price falls. Or, that nice juicy dividend could be slashed.
In most cases, dividend yields are tantalizingly high for a reason (the stocks are cheap and rightly so) – and are simply not supported by the fundamental earnings power of the business.
Given that a dividend yield is a function of the company’s annual dividend and its stock’s current price, it very often tells you more about the latter than the former.
Even a mediocre dividend can suddenly produce a high yield if the stock price falls off a cliff. It’s one of the pitfalls we avoid in Growth Investor when seeking yield – and a good reminder to always do your homework before investing.
So, when hunting for the next best dividend stocks, not only do you want ones with stable, growing dividends, but you need companies that consistently deliver sales…and positive earnings.
Unfortunately, that’s not the case with a lot of energy stocks right now. Many of these companies are not well-diversified, and thus extremely vulnerable to the geopolitical and supply/demand disruptions that plague the sector.
And to show you what I mean, I’m sharing a list of energy stocks that are rated D or F in both my Portfolio Grader and Dividend Grader. So, neither the fundamentals nor dividend trends are stacking up in their favor, making them automatic sells.
Below are 7 energy stocks you won’t want to go anywhere near.
Company Symbol Industry Yield Dividend Grader Score Portfolio Grader Score Apache Corp. NYSE:APA Oil & Gas Production 4.56% F F Enable Midstream Partners NYSE:ENBL Oil Refining/ Marketing 10.54% D D Murphy Oil NYSE:MUR Oil & Gas Production 5.45% F D Noble Energy NYSE:NBL Oil & Gas Production 2.27% D D PBF Energy NYSE:PBF Oil Refining/ Marketing 5.51% F F Permian Basin Royalty Trust NYSE:PBT Oil & Gas Production 9.17% D D Targa Resources NYSE:TRGP Oil Refining/ Marketing 10.24% F D
OK, well that’s the bad news. So where SHOULD we invest?
Well, I’m a numbers guy, and I’ve developed a tried-and-true method for assessing any stock available. And today, I see clear opportunities as well as threats.
The good news is that the “smart money” on Wall Street knows this – and is showing a clear preference for “Bulletproof” stocks. They’ve already tipped their cards by pouring their capital into these particular stocks. And the buying pressure that results from this is exactly what my Portfolio Grader system is designed to spot!
Having spent time on Wall Street, these big institutional investors quickly learn that you need dividends to grow a portfolio over time. The income really helps smooth over the rough patches.
Dividend growth stocks are especially important today – when the global bond market is just going haywire:
We’ve got falling and even negative yields overseas. But as investors retreat to U.S. Treasuries, it’s causing bizarre effects here, too. Just look at what happened on Wednesday, when the two-year Treasury actually began to yield MORE than the 10-year Treasury!
And even the 30-year Treasury can’t be relied upon for good yield anymore. On Thursday, its yield dropped below 2% for the first time ever.
So – whether you’re managing big institutional cash, or your own portfolio – you’re going to need what I call the Money Magnets.
These companies are in the opposite position of the energy stocks we looked at before: Not only did these stocks earn an A in my Portfolio Grader, thanks to strong buying pressure and great fundamentals…
The stocks also earn an A in my Dividend Grader. These stocks are able to pay great yields – and have the strong business model to back it up!
All in all, I’ve got 27 strong dividend growth stocks for you, almost all of which yield more than the S&P 500. These stocks are poised to do well as we continue to see international capital flow to the U.S. markets. Click here to see how I found these stocks, and how you can get great performance out of YOUR portfolio – come what may.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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