Within just 17 years the United States will be completely oil
independent. For a country that imported 60% of its oil as
recently as 2005, it's a huge shift.
This change creates some interesting choices for investors.
Given the time horizon of this growth, it pays to be picky. Not
every American oil and gas company will skyrocket overnight - or
necessarily at all.
Today I'm going to tell you a story about two companies that
should be prospering from the American energy boom. And I'll show
you the stark difference for their shareholders.
One of these companies is
Chesapeake Energy (
The company is the biggest domestic producer of natural gas in
This $14 billion energy giant owns interests in 45,000 wells
scattered across the entire country. In just about every energy
formation, you'll find Chesapeake drilling wells.
The company's primary focus is natural gas. Chesapeake spends
huge amounts to find new wells and bring them into production.
Unfortunately, the growing production has been offset by falling
prices for natural gas.
As a result, Chesapeake reported a net loss of $940 million
last year. The company can afford to pay shareholders only a 1.6%
dividend. The stock price isn't making up for that tiny dividend
either - it's fallen nearly 60% in the last five years.
Another company with similar stakes in the natural gas
Kinder Morgan Energy Partners (
Kinder is also a big player, with a market cap of almost $32
But Kinder isn't in the business of producing natural
gas. Instead, the company is involved in transportation.
And this is perhaps the most profitable aspect of the energy
Using 33,000 miles of pipelines, Kinder transports natural gas
throughout North America. In this pipeline business, the company
gets paid for transporting oil and gas regardless of the market
price for the commodity.
This means that the pipeline company gets paid based on volume
- or the amount of gas being transported. The more gas it moves,
the more it gets paid.
Last year, Kinder earned a profit of $1.3 billion. The
company's revenues were about 30% below Chesapeake. Yet Kinder
turned a healthy profit instead of a billion dollar
It won't surprise you to learn that Kinder has been a great
investment. The company pays a generous 5.9% dividend, and has a
history of increasing payments to its shareholders.
That healthy yield is complimented by a rising stock price.
Over the last five years, the stock is up a total of about
Finding big oil and gas discoveries may seem exciting. But for
investors seeking both capital gains and a growing income stream,
sometimes the boring companies like Kinder have much more to
This is a special breed of company, known as a Master Limited
Partnership or MLP. These companies have a special tax
status that is good for shareholders. By design, Kinder is set up
to reward shareholders with rich dividend payments.
Some executives and companies are intent on delivering profits
to shareholders. Others are more interested in growth for the
sake of growth. When it comes to my own investment portfolio, the
choice is crystal clear.
I'll take the juicy 5.9% dividend from Kinder over that tiny
1.6% payment from Chesapeake any day of the week.