Markets
HFC

An Oil Refiner That's Raised Payments 50% In 3 Months

This is the perfect example of why everyone should beinvesting in the "Dividend Vault"...

For those of you who don't know, the Dividend Vault is an idea coined by StreetAuthority co-founder Paul Tracy. He's been telling investors for months about how corporate America has been stockpiling billions of dollars -- more than $1.7 trillion total -- since the GreatRecession , and now that theeconomy has stabilized, many companies are about to start spending thiscash .

This is a big deal. $1.7 trillion is moremoney than the gross domestic product of 180 countries. It's also enough money to give every retiree in the United States a check for $42,500.

Some companies might pour cash into capital improvements or purchases, while others may be looking to spend on research and development. But a handful of companieswill be using their cash to make payments directly to shareholders in the form of dividends andstock buybacks.

Fortunately, it's not too late to get in on this big giveaway.

Let me explain...

Dividendstocks are back in style, and companies are starting to realize that many investors won't even consider buying a stock unless it pays a dividend. That's why 2012 set a record for dividend payments, and 2013 is forecast to break that record.

By investing in companies with large cash hoards, or "Dividend Vaults," you're buying solid companies with the ability to grow their dividend, buy backshares and pay special dividends.

Today, I'm going to reveal one of our favorite "Dividend Vault" stocks. It's a perfect example of a stock that could pay you huge amounts of cash today and for many years to come.

Since StreetAuthority Daily first mentioned the "Dividend Vault" idea back in late January, one stock from our list of 13 has already paid two dividends and returned 8.86%... and that's in just a little more than three months. On top of that,analysts at Oppenheimer said last week that they expect this stock to jump another 26% thisyear .

The company I'm talking about is none other than petroleum refiner HollyFrontier Corp. ( HFC ) .

What makes HollyFrontier so special? For starters, its refineries sit right on the edge of some of the largest, newly found oil-producing regions throughout the country.

You see, with the advent of horizontal drilling and hydraulic fracturing ("fracking"), oil drillers are tapping resources that were previously unattainable.

For the last few years these oil hot spots have been pumping out growing amounts of oil. In 2012, North Dakota increased its daily oil production by more than 250,000 barrels to a current 720,000 barrels per day, while Texas increased its output by about 500,000 barrels to a current 2.1 million barrels per day.

But with this growth has come with some unintended consequences. These midcontinent states have produced so much oil that they've actually created an oversupply in the middle of the country.

Of course, HollyFrontier has taken full advantage of this -- the abundance of oil and natural gas has helped the company post outstanding profits in recent years.

Today, HollyFrontier is one of the largest petroleum refiners in the United States. The Texas-based company's five refineries -- located in New Mexico, Oklahoma, Kansas, Utah, and Wyoming -- combine to refine around 443,000 barrels of crude oil per day.

Thanks to higher production, the company is able to buy crude at below-average prices, refine it, and then sell it at a significantly higher price. As a result, it's enjoying unprecedented success.

In 2012 it hit new records in totalnet income andearnings per share for its fourth year in a row. Most important, in the fourth quarter of 2012, its refinerygross margin was up to $24 a barrel, up 57% from the previous year's quarter.

On top of that, HollyFrontier has a $1.8 billion "Dividend Vault" and has shown a commitment to returning a large portion of it to shareholders. It paid four special dividends -- totaling $2 per share in 2012 -- to add to the quarterly dividend it also paid.

And so far this year, it has raised its quarterly dividend 50%, from 20 cents to 30 cents per share, and has already paid a 50-centspecial dividend .

If you were to buy shares at today's price (at around $51), and the company pays a 50 cent per-share special dividend four times along with its normal quarterly dividends (as it has done since 2011), you would be collecting ayield of 6.2% on your shares by this time next year.

With such a large "Dividend Vault," the company can easily afford it -- the company's chief executive, Mike Jennings, recently said he expects HollyFrontier "to continue to pay both regular and special dividends" going forward.

Of course, nothing in investing is 100% certain. If U.S. oil production drops significantly, it would probably reduce HollyFrontier'smargin advantage. This could causeprofit margins to shrink and cause investors to punish the share price.

But with the shale revolution in full swing, oil production is only expected to rise over the next decade.

Action to Take --> Of course, nothing in investing is 100% certain. If U.S. oil production drops significantly, it would probably reduce HollyFrontier's margin advantage. This could cause profit margins to shrink and cause investors to punish the share price.

But with the shale revolution in full swing, oil production is only expected to rise over the next decade, and HollyFrontier should continue rewarding shareholders handsomely over the coming years.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2016 StreetAuthority, LLC. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

HFC

Other Topics

Investing Stocks

Latest Markets Videos