The 1 Best Dividend Investment for Natural Gas

Investors looking for a way to meaningfully build income should strongly consider upstream MLPs. Among the partnerships, this one is the most weighted toward natural gas, which is steadily growing in usage.

Jul 24, 2014 at 11:06AM

Wind River Rig Wiki Pic

A rig in the gas-rich Wind River basin. Source: Wiki Commons

There's a certain peace of mind in simplicity.  A simple investment is often an investment that one doesn't have to look after constantly. For income-minded investors, upstream master limited partnerships, or MLPs, represent a way to pick up high-quality, mature oil and gas assets while meaningfully building income. 

These days, most upstream MLPs have either a mix of oil and gas production, or are weighted mostly to oil, which offers a higher return at today's prices than does dry gas. But one upstream MLP has taken a contrarian path and has focused almost entirely on natural gas in its most recent acquisitions. That name is Vanguard Natural Resources (NASDAQ:VNR), and its simple, yet contrarian acquisition model has made the partnership stand out among the rest for a few reasons.

Between 2012 and 2013, when peers such as Linn Energy (NASDAQ:LINE) were actively acquiring oil acreage, Vanguard went in the other direction and bought gassy acreage instead. While gas assets did not provide the high returns that oil did at that time, gas-producing acreage could be bought very reasonably, and there was always the prospect of higher returns and increased drilling inventory if gas prices were to ever go higher. 

Today, nobody can argue against the success of Vanguard's wager. During 2012, when Vanguard was more actively acquiring natural gas acreage than it is now, natural gas prices hovered between $2 and $3 per thousand cubic feet. Today, natural gas prices are around $4.50, and Vanguard now benefits from additional future drilling inventory in the Wind River, Piceance, Powder River, Green River, and Pinedale-Jonah Basins, all of which are Rocky Mountain basins where Vanguard has acquired acreage over the past few years. Right now, 66% of Vanguard's production volume is natural gas, with a significant portion of the remainder being natural gas liquids. 

Vnr Gas Fundamentals

Vanguard Natural Resources Investor Relations; Raymond James Investor Presentation

While natural gas may still be in a state of overabundance, we can see here that excess capacity in the U.S. is dwindling quickly. This comes from two different forces: Declining imports and, more importantly, increasing demand as a result of lower prices.

The biggest contributor to this demand increase is power conversion. Consumers demand the most economical form of electricity available, and that is increasingly becoming natural gas. Therefore, consumers are moving from coal to cleaner, often cheaper natural gas. In addition, liquefied natural gas exports are just beginning to grow. After all, natural gas prices in both Europe and Asia are much higher than those in the U.S. Also, pipeline exports to Mexico have been rising for the last few years. By 2016, demand should begin to outpace supply, which will lead to further increases in the price of natural gas. 

Among upstream MLPs, no partnership will benefit more than Vanguard Natural Resources will. Vanguard has not only the highest weighting to natural gas among its peers, but it also has a good bit of additional inventory in the Permian, Arkansas and the Rockies, which can be activated for economical drilling in the case of higher natural gas prices.

Jonah Gas Pic Ambiente Ondas

Ariel view of the Jonah gas field, a major area of operations for Vanguard. Photo by Ambiente Ondas blog. 

Foolish takeaway
Vanguard Natural Resources is an income-centered way to take advantage of the natural gas renaissance going on in the U.S. With a distribution yield of 8.1% and interesting growth prospects ahead of it should Henry Hub continue to climb, this partnership is worth a look. 

Looking for more dividends? 
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Casey Hoerth owns shares of Linn Energy, LLC and Vanguard Natural Resources. The Motley Fool has no position in any of the stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers