Get Your Natural Resources and Fat Dividends Here
Sep 10th 2013 5:59PM
Updated Sep 10th 2013 6:00PM
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some natural-resources stocks to your portfolio but don't have the time or expertise to hand-pick a few, the iShares S&P North American Natural Resources ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.48%.
This ETF has a mixed performance record, beating the world markets over the past decade, but underperforming them in recent years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why natural resources?
Our global economic slump won't last forever, and there are already signs of life here and there. Thus, companies specializing in natural resources are poised to prosper as construction and infrastructure projects get under way and manufacturing kicks into a higher gear.
More than a handful of natural-resources companies have advanced over the past year. Others didn't do quite as well over the last year but could see their fortunes change in the coming years.
Natural gas specialist Spectra Energy surged 20%. It has been inking some promising partnerships, and recently yielded 3.7%. Times have been tough lately, with low natural gas prices, an oversupply, and few rigs, but as those factors turn around, so should Spectra's fortunes. The company, along with NextEra Energy, was recently awarded a contract to build a $3 billion natural-gas pipeline into Florida. It's also angling to boost dividend payouts via some reorganization. The company's second quarter featured operating revenue down some, but net income 5% above year-ago levels. Bulls have high hopes for profits from the Utica shale region.
Occidental Petroleum advanced 7%. It recently reported a rather flat second quarter, and some have been waiting for the company to break itself up. A leader in (enhanced oil recovery), Occidental has been improving its performance on several measures lately, though, such as revenue and earnings growth. Dividend growth has also been solid. On the negative side, profit margins have shrunk while debt has grown. For patient investors, the stock offers a 2.9% yield. Bulls expect production growth from its mature oil assets.
Kinder Morgan , a pipeline giant with a dividend yield of 4.5%, gained 6%. The company's reputation hasn't been helped by several leaks, but its last quarter was solid, in part because of the diversification of its businesses. Kinder Morgan is looking to expand its capacity and capitalize on the boom in oil sands production, but some worry that it might be growing too aggressively and might not be able to sustain its dividend. The stock took a hit recently, when Hedgeye Risk Management called it "a house of cards."
Freeport McMoRan Copper & Gold , the world's largest publicly traded copper producer, sank 20%. Despite being challenged by falling copper and gold prices, the company's second quarter was encouraging, featuring estimate-topping earnings (and revenue a bit below expectations), along with effective cost cutting. It recently purchased a pair of oil-and-gas-producing companies, and this diversification has helped its performance lately. While some wait for better days, other see Freeport's stock as undervalued, with its forward P/E ratio of 10. Bulls are optimistic about Indonesia's possible lifting of restrictions on exports of ore, but bears worry about a copper glut depressing prices. The stock offers a sizable 4% dividend yield.
The big picture
Demand for natural resources isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
The article Get Your Natural Resources and Fat Dividends Here originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Kinder Morgan and Spectra Energy and owns shares of Freeport-McMoRan Copper & Gold and Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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