All my signals tell me that oil is about to go higher. And when we do, we’ll be in a position with two budgets that will generate oversized dividend yields of 9%.
How can I be so sure that the sticky substance is a coil spring?Well, for one, the two underrated oil budgets we’re going to communicate below are trading at massive discounts compared to their “true” value. Right now, you can buy them for less than 90 cents on the dollar.
This provides our oil earnings with an additional boost. And if oil falls from here, which is highly unlikely, we still have great protection against problems, thanks to the same discounts. Either way, our 9% profit stream will come safely.
To get into the dividend deal we’re preparing here, we’ll first have to focus on our “crash ‘n’ rally” game on oil, which, if you’ve read my columns for the past two years, you’ve probably known by heart.
Here’s how it happened after the 2008 and 2020 accidents:
We’re now at level 4, and this is where our two “upmovers” come in, as either is about to tighten the screw on already scarce supplies, and that means one thing for pricing: profits.
The first is China’s reopening, which took a stand after Xi’s epic decline in COVID restrictions in January. We are now seeing evidence that the Red Dragon economy is booming.
In January, for example, Chinese customer confidence reached all-time highs since March 2021. And a measure of new export orders rose to the point since 2011.
These are the latest signs that the world’s greatest power has returned. However, in the oil markets, the crickets. . .
This cannot last, especially considering our upward driving force moment: the fact that Biden’s management is discarding the Strategic Petroleum Reserve (SPR) to artificially maintain a cap on oil prices.
Since mid-2020, those bookings have decreased by 43%! This oil will have to be replaced, and when it is, Uncle Sam’s access to the oil market will increase demand, putting pressure on prices.
Combine the inevitable filling of the SPR with the reopening of China and it is quite evident that oil is a coil spring at the moment.
A smart way to take advantage of this scenario is to use a closed budget (CFF), because in doing so, we give ourselves two advantages that buyers of oil equity and ETFs match.
The first? High dividends. CEFs pay almost more than unusual stocks, and the Kayne Anderson Energy Infrastructure Fund (KYN) is no exception. It has a disproportionate 9% payout that it maintained (and even increased) during the dangerous early 2020s!
Then, the discount, which at 11. 8% gives us the portfolio of KYN “toll” sets (pipeline operators and oilfield service corporations such as Enterprise Products Partners (EPD), Energy Transfer LP (ET) and ONEOK (OKE)) for 88 cents on the dollar. .
(Also note that although KYN owns master limited partnerships, or MLPs, it sends you an undeniable Form 1099, not the confusing K-1 package that MLPs send at tax time. )
Another dividend-driven oil game on our list is the MainStay Global Infrastructure Megatrends Fund (MEGI). This is a smart selection if you’re looking for a more varied rough game.
MEGI also comes with a strong reduction (12. 5% in this case) and a decline of 9%. The fund had the misfortune of breaking free in October 2021, before the 2022 landfill fire and when oil was above what it is today. This weighed on his performance. But it has kept this payout solid, and this decline is why the giant MEGI drawdown exists today.
Here’s one last thing to consider: MEGI also gives us exposure to herbal gas, which was phased out after Europe rushed to fill its tanks last summer, following cutting off Russian gas supplies. The continent also got unforeseen help from a warmer winter.
Right now, “natty,” the least offensive of fossil fuels, is forming a backdrop as China reopens and Europe embarks on an accelerated moment to secure scarce supplies. This puts MEGI with a profitable price in a smart position to take advantage of a rebound. in oil and gas.
Brett Owens is chief investment strategist at Contrarian Outlook. For more wonderful ideas on sources of income, get your loose copy of your most recent special report: Your Early Retirement Portfolio: Huge Dividends, Every Month, Forever.
Disclosure: None