Worried About Rising Gas Prices? Here's What You Need to Do

Gas prices are up $0.05 over the past two weeks and likely heading higher. Here’s what you can do to insulate yourself from that rise.

Mar 30, 2014 at 1:15PM

As winter thaws into spring, it's also thawing out the price of gasoline. Over the past two weeks, gas prices are up about $0.05 nationally to an average of $3.56. That's at the lower end of the peak price forecast that AAA saw just last month, with $3.75 at the upper end of its forecast for this spring.

While the Energy Information Agency's outlook for 2014 forecasted that the price of gas would average $3.43 per gallon this year, that doesn't mean we aren't going to see gas price spikes. It also doesn't mean we should sit by idly as money goes out of our pockets and into the coffers of energy companies. So, even though the forecast as seen below suggests prices will eventually take a breather, we should be prepared for the forecast to fail. 


Source: Energy Information Administration. 

Not only that, but $3.50 per gallon for gas still takes a pretty big bite out of our budgets. So for those worrying about higher gas prices, or just tired of paying so much for it, I have a solution that could help offset that increase, or at least help to offset some of what we pay for gasoline. 

My personal hedge
Over the past 12 months, I've spent just over $2,500 to fill up, even though my wife and I both work from home. We do travel a lot, but we still pay an awful lot of money to fill up. Needless to say, I'd like to have more of that money back in my own pocket rather than padding the profits of the energy industry.

 Money Jar

Source: Flickr/TaxCredits.net.

One of the ways I've taken back some of the profits I've handed to the energy industry is to invest in it. A few years ago, I made a small $500 investment that eventually turned into shares in refining giant Phillips 66 (NYSE:PSX). This year, those shares paid me just over $25 in dividends last year, which offset about 1% of my gas purchases. On top of that, my initial investment has yielded nearly $1,000 in capital gains over the nearly two years since I picked up shares of Phillips 66. Add it up, and that small investment has, in a sense, offset more than 20% of my gas purchases last year.

One big gas dividend worth a look
Following my hedge by investing in a refiner like Phillips 66 or its rival Valero (NYSE:VLO) is a solid way to offset some of the money spent on gas. I say "some" because it would be hard for an investor to offset all of his or her gas purchases with refining dividends alone. The problem here is that the dividend yields on these stocks are rather low, as Valero, for example, just yields 1.85%, while Phillips 66's dividend yield is slightly over 2%. I do, however, have another option that would really fuel big dividends from gasoline. 

Thanks to a tax loophole set up by the IRS, Northern Tier Energy (NYSE:NTI) is able to offer its investors an easier option to fill up on gas-fueled income. Northern Tier, which is structured as a MLP, owns a single refinery in St. Paul Park, Minn., as well as 164 company-operated gas stations as the following slide details.

Northern Tier Energy Assets

Sources: Northern Tier Energy Investor Presentation (link opens a PDF).

The key here isn't so much the asset map, but the fact that Northern Tier is structured as an MLP. Because of that structure, the company is required to pay out nearly all of its income to investors. If the rate of the company's last distribution holds steady, it equates to a current yield of 6.4%, which is more than three times the yield of both Phillips 66 and Valero.

Northern Tier, however, is a variable-distribution MLP, meaning its distribution rises and falls with its profits. Its distribution has been as low as $0.31 per unit to as high as $1.23 per unit over the past year. In fact, the distribution yield over the past year has averaged just over 10%. So there is the potential that Northern Tier can really offset a nice chunk of the cost of driving. For those who think gas prices are going higher, or at least the profits of refineries and convenience stores, an investment in Northern Tier Energy is a great way to profit from that bet. That's especially true when considering Northern Tier's refinery is located in proximity to cheap Bakken oil. 

Investor takeaway
Dividends aren't just for those nearing retirement. Investing in a dividend stock with a specific goal in mind, such as offsetting rising gas prices, can put an investor on the pathway to eventually offsetting all of his or her expenses and maybe even retiring early. Not only is it a great goal to have, but it can also make price increases easier to swallow as those profits will come back to you via dividend checks. 

The IRS incentive that makes MLPs a winner
You already know record oil and natural production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report "The IRS Is Daring You to Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Matt DiLallo owns shares of Phillips 66. 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 don't 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.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers