I’m going to continue to diversify my Dividend Income Portfolio by selling Enbridge Energy Partners (EEP.) It’s one of three pipeline master limited partnerships in the portfolio. The sale of this position plus the sale of Natural Resource Partners (NRP) earlier reduces the energy exposure of this portfolio to a still hefty 40% from a previous 60%.
I’m not worried about a collapse in energy prices in 2010, but I don’t see a significant rally in oil prices from current levels and natural gas seems stuck near lows for a while because in the short-tem supply seems ample to meet recovering demand. (For my very different take on long-term energy prices see my post https://jubakpicks.com/2009/12/08/the-return-of-the-oil-shortage-around-2015-and-why-the-industrys-logical-decisions-now-will-make-it-worse/ ) I see Enbridge Energy Partners with its bet on growing volumes of oil from Canadian oil sands as especially exposed to stagnant energy prices. Estimates are that it takes a price of $70 a barrel to make development of those resources attractive.
Why is that important?
Because stagnant energy prices and only slowly recovering demand in 2010 will make it hard for energy master limited partnerships to increase earnings enough to significantly increase dividend payouts. In the second half of 2010 I expect interest rate increases from the Federal Reserve at the short end of the rate curve to add to pressure on their prices that income vehicles are already feeling from increases in long-term interest rates.
In other words I think the best kind of income stock to own in 2010 will be one that can show a history of rising dividends and the solid prospects for continued increases. I’m willing to trade some current yield, in fact, in exchange for the prospects for dividend increases.
I’m selling Enbridge Energy Partners out of my Dividend Income portfolio with a gain of 2.3% since I added it to the portfolio on December 18, 2007. Add in dividends received during that holding period and the total return comes to 20%.
(Full disclosure: I will sell my personal position in Enbridge Energy Partners three days after this is posted.)
Jim
I’m getting ready to follow your sell reco on EEP at more than a 100% gain, for which I’m very appreciative. It almost makes the state by state tax filing requirement of MLPs acceptable [didn’t know I was getting into that when I bought]. As a replacement, what do you think of the Canadian energy trusts like Enerplus Resources? Fat dividend, based on a currency that looks to appreciate, supplying a commodity whose value will likely be bid up as the world economy recovers. They would seem like a strong candidate for the dividend portfolio, if they keep their word on not slashing dividends with the 2011 tax changes…Your thoughts?
I guess I am confused about one thing. If the goal of the dividend income portfolio is to beat the returns of the 10 yr treasury without increasing risk by much. Why not invest in Aaa corporate bonds? Is the capital appreciation from the stock something you are willing to add some risk in order to get?
Jim, as always, thanks for the insight! I’ve been hunting for dividends and came across Business Development Cos (BDCs) like HTGC, TCAP, PNNT. I know these can have tax issues for investing in taxable accounts, but they have very high yields and some look like really solid companies likely to increase payouts. I hope you take a look at some of these for your tax-sheltered fans.
Jim…over on investor village under the mlp group theres a discussion going on in reference to tax law changes for mlp’s…i guess theres a bill in the the house that some people say has implications for mlp’s in an unfavorable way..any comments on the chances the favorable tax treatment might be changed..thanks
After reading Jim’s explanation on why he is dropping EEP from the Dividend Portfolio, I decided to check the 2010 growth prospects of all energy-related stocks in Jim’s portfolios. The numbers are from MSN Money. I sorted them from good to bad per 2010 growth rates.
Here are my conclusions:
– Except for ORA, 2009 has been bad for all of them.
– In 2010, STO and PVR will be exceptionally good, GLF and RIG will be exceptionally bad, Others will be OK, at best.
– For long term (5 years) growth, ORA and RIG are remarkably good. Others don’t deliver more than 4-5% growth.
I don’t take 5-year estimates too seriously. I don’t know how dependable 2010 estimates are. Maybe Jim will help us in this regard.
Ticker: Last-5-Years, FY-2009, FY-2010, Next-5-Years
STO: -6.70%, -35.80%, +49.30%, +4.00%
PVR: +11.10%, -21.80%, +35.70%, +5.50%
MMP: +4.30%, -30.60%, +18.30%, +4.50%
ETP: +36.40%, -38.20%, +14.40%, +5.30%
NRP: +22.90%, -42.50%, +10.50%, +1.00%
EEP: +10.40%, -12.70%, +8.80%, +2.50%
OKS: +17.00%, -41.30%, +7.40%, +4.00%
SPH: +29.70%, -24.30%, +4.60%, +8.00%
ORA: NA, +22.80%, +1.80%, +20.10%
GLF: +64.20%, -39.60%, -7.90%, NA
RIG: +74.70%, -18.00%, -9.80%, +28.00%
Jim, do you forsee the dividend rate of EEP specifically taking a big dip, I purchased these for the long term (20+) year dividend investment and am not interested in selling off in the short term unless the dividend payback won’t be there in the future.
thanks,
Jeff
Since you’ll be wanting a stock or two to replace the ones you’ve recently sold out of the dividend income portfolio, what do you think about New York Community Bancorp Inc (NYB) and its 7.70% dividend?