3 Sizzling Dividends to Buy in 2014
Dec 11th 2013 8:05AM
Updated Dec 11th 2013 8:06AM
2014 will bring plenty of exciting investment opportunities, but sometimes shopping for quality dividend yields will be more beneficial to growing your retirement nest egg. Below you will find three high yielding stocks our analysts think are good buys for the coming new year.
Matt DiLallo: I think LINN Energy investors will see a big dividend increase in 2014. The company struggled for much of 2013 after some early wells underperformed and an attack led by short sellers led to an informal inquiry by the SEC. Panic selling and a cloud of uncertainty nearly cost the company its deal for oil-rich Berry Petroleum . However, with the SEC now blessing its deal and its operations now turning a corner, LINN is poised for a big year in 2014.
LINN Energy currently yields a 9.5% distribution. However, the company is well positioned to raise its payout next year. For starters, LINN is set to earn up to 10% more than it pays out to investors next quarter. Further, the Berry deal is expected to be accretive to the income it has available for its distribution. On top of that, LINN is not done growing. It has a number of organic growth opportunities in the Permian Basin as well as those that Berry brings to the table.
Further, this is a company that has closed 60 separate deals since going public. I expect LINN to be very active next year, and it will likely buy several billion dollars' worth of oil and gas assets before the year is over. All of which point to strong distribution growth in the year ahead.
Travis Hoium: In 2012, there was nearly as much oil and natural gas discovered in more than a mile of water than anywhere else around the world. This is also the only region that has generated enough new discoveries to replace depletions. In short, the world's new oil discoveries are happening in deepwater and that's great news for Seadrill , which has one of the largest ultra-deepwater fleets in the industry.
In total, Seadrill has 21 ultra-deepwater rigs under its control and eight more under construction. It also has the lowest average rig age of 3.1 years , which means it can command industry-leading dayrates of more than $600,000 for a single rig. When you consider that a new rig costs about $600 million, a dayrate that high means that there's plenty of cash left over to pay investors a healthy dividend.
Seadrill just increased its dividend to $0.95 per share in the third quarter, which is about a 9.2% dividend yield given today's stock price. That's a big dividend and considering the fact that most new oil and natural gas discoveries are in Seadrill's wheelhouse of ultra-deepwater I think it will continue to grow over the next few years.
Tyler Crowe: Of the three on this list. ConocoPhillips' dividend yield doesn't seem as impressive as that of either Seadrill or LINN Energy. Still, a 3.7% yield is nothing to scoff at. Looking down the road, the prospects for ConocoPhillips make this dividend look rock-solid for years to come. Despite divesting more than $12 billion in assets over the past two years -- including the spin off of its downstream operations into Phillips 66 -- oil and gas production has only dropped by 100,000 barrels per day.
This has been possible because ConocoPhillips has been able to do something that the big names in the oil industry haven't: produce from unconventional shale at a staggering pace. Production from the holy trinity of onshore U.S. oil -- the Bakken, Permain, and Eagle Ford -- is at 214,000 barrels per day, and there is still tons of room left to run. The company estimates that there are another 1,800 prospective well sites in the Eagle Ford alone, and it is just starting to test the shale formations on its holdings in the Permian.
Add all this up, and ConocoPhillips looks like it is in great shape to maintain -- and potentially grow -- its dividend for years to come.
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.
The article 3 Sizzling Dividends to Buy in 2014 originally appeared on Fool.com.Fool contributor Matt DiLallo owns shares of Phillips 66, ConocoPhillips, and LINN Energy. Fool contributor Travis Hoium owns shares of Seadrill. Fool contributor Tyler Crowe owns shares of LINN Energy. The Motley Fool recommends and owns shares of Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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