This week we will be rounding out the energy investment section of the Thousandaire portfolio. If you have been following the Thousandaire stock picks, you’ve seen us buy BP, and Prudhoe Oil Royalty Trust (BPT) and today’s pick, Energy Transfer Partners (ETP) You may be wondering yourself why 3 investments in the same energy sector, when investing in one stock could save some trading fees.
However if you look a little bit closer you will notice that even though these are in the same sector, these three investments couldn’t be more different.
- Oil exploration and retail sales: BP
- Direct ownership of oil wells: BPT
- Direct ownership of pipelines: ETP
The first purchase, BP stock, was an overall play in the energy sector (as well as a value play due to the depressed price after the oil spill). A large success factor for this investment will be the continued exploration of new natural resources. The second purchase, BPT royalty trust, was a direct play into oil prices. Success in this investment will be determined solely by an increase in oil prices. The third purchase, ETP, also has its unique investment goal.
Energy Transfer Partners (NYSE:ETP)
Energy Transfer Partners’ business model in a nutshell is to own natural gas pipelines. ETP’s profits are based on energy companies paying usage fees for these pipelines. Therefore ETP profits are not tied to oil or gas prices, but instead the amount of gas that is distributed. Since their cashflow is not tied to fluctuating prices they have been able to pay a dividend like clockwork. They have paid $0.89 every quarter for the past 2 years. For those that excel at math, that’s nearly a 7% return.
This rounds out the energy sector investment for the Thousandaire portfolio. While previously we have invested in oil exploration and oil prices directly, the biggest success factor for ETP is America’s continued use of natural gas. As long as we continue to use natural gas, this investment is similar to collecting a toll on a bridge.
I have a long position in ETP
I love The Hoff’s analogy to collecting a toll on a bridge. The risks he didn’t mention were that, when you collect a toll on a road, you are responsible for making sure that road doesn’t have potholes. As long as the pipes are maintained and gas keeps flowing, this should be a great investment. I hadn’t heard of it before, but it definitely looks like something I could add to my Roth IRA.
Important to note that ALL ideas, thoughts, and/or forecasts expressed or implied herein are for informational and entertainment purposes only and should NOT be construed as a recommendation to invest, trade, or speculate in the markets.