Oil prices have been on a roller coaster this week after two of Saudi Arabia’s major oil facilities were hit by drone strikes over the weekend.
There are a few other factors that don’t bode well for energy stocks, either… that doesn’t mean there aren’t good plays in the sector. In fact, one particular energy stock is showing an “A” rating in my Dividend Grader – and thanks to its specific business model, the company makes good, steady money (as we’ll see).
That’s true even though we’re going to see a persistent deflation in energy, now that it’s fall – and worldwide demand is ebbing. For example, OPEC reduced its forecast for global crude oil demand in 2019 and 2020 just last week, due to slowing global growth and weaker-than-expected demand.
This is certainly good news in some ways. As we saw on Thursday and Friday (in the U.S. Labor Department’s price data for August), both consumers and producers are benefiting from lower energy costs…anywhere from a -2% to a -5% drop!
One key beneficiary is the importers. This is one reason why I’m not too worried about the trade war; with Chinese import prices still down 1.5% in the past year, the tariffs just aren’t having a material impact.
And all this is part of a larger trend: The strong U.S. dollar has been working its magic for a good 12 months, pushing commodity prices lower.
So, when we look at the oil-market volatility, I think we ought to wait it out – and let cooler heads prevail in the Middle East. Of course, the prospect of a war with Iran on the Saudis’ behalf is worrisome. But keep in mind that the sanctions are working…without being able to obtain credit, Iran has big enough problems economically aside from war with the U.S.-Saudi alliance.
In the meantime, the United States is still the biggest oil producer. And we always have an ace up our sleeve: the Strategic Oil Reserve.
As for exports, you’ve got to take a long view on that, too. The United States is about to become the biggest crude-oil exporter – thanks to new pipelines in Corpus Christi, Texas.
Pipelines are a great business…especially for investors seeking income. So, even when other energy stocks don’t make the grade, pipelines tend to be a staple of my Elite Dividend Payers Buy List at Growth Investor. That’s because, even when oil and gas prices are really low (like they are now), pipelines make their money from volume coming through their terminals.
Which brings me to my A-rated dividend investment: CNX Midstream Partners L.P. (CNXM).
CNXM is in the natural-gas business, but it is on the terminal pipeline side. So, even with these low gas prices, it’s benefitting from shipping more natural gas.
Relatedly (and more importantly), CNXM is a dividend stock that keeps increasing its dividend.
Here is CNXM’s Report Card from my Dividend Grader:
CNXM’s Quantitative Grade tells us that it’s not getting a lot of attention on Wall Street right now. But when you’ve identified a great income investment, there’s a silver lining to that: You get the chance to pick up shares at a bargain price.
And as you see above, CNXM does qualify as a great income play. Its fundamentals, Dividend Trend, and Dividend Reliability are all strong. And it gets top marks for both Earnings Yield and Forward Dividend Growth.
Listen, my flagship newsletter is Growth Investor. I demand growth from any stock – and that’s true of dividends, too. So with CNXM, you not only get a discounted buy, for a current forward dividend yield of more than 11%. You also get the prospect of bigger payouts in the future.
That being said, CNXM is just below my preferred buy price now. For full details, and to hear more on my dividend strategy, check out Growth Investor now.
Note: The Saudi oil attack is yet another reminder: In the markets, all sorts of crises can (and sometimes do) have an impact on stocks. Before events play out, you never know how hard they’ll hit, or how lasting that impact will be…
But as an investor, you CAN prepare by buying bulletproof stocks for your portfolio.
And when good stocks are unfairly impacted by unrelated events half a world away, from drone strikes to Brexit, it opens a small “window of opportunity” to buy these stocks – at a cheaper price.