1 Great Dividend You Can Buy Right Now

This oil and gas company is putting money in shareholders' pockets every single month and is paying out close to a 5% yield.

May 19, 2014 at 10:03AM

Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy or the dividend itself isn't sustainable. In others, the dividend is so low it's not even worth the paper your check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Today, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say that these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out the previous selection.

This week, we'll turn our attention to North American oil, gas, and liquid natural gas exploration and production company Enerplus (NYSE:ERF) and I'll show you why it is the sugar and spice and everything nice that income investors have been looking for in an energy company.

Enerplus Bakken
Source: Enerplus. 

No company is without risks
As we do every time we examine a great dividend stock, let's begin with the risks involved and then move into why it should be able to overcome these adversities over the long run.

To begin with, Enerplus was once a Canadian income royalty trust -- its main acreage assets are found in Canada, although it has wells in the Williston Basin and Marcellus Shale within the U.S. -- but lost its privileged tax status due to changes enacted in Canada. The result was that as of January 2011, Enerplus converted to become a normal corporation. Higher taxes associated with being a normal corporation made its prior dividend payouts unsustainable by mid-2012 and caused quite the exodus from investors. In fact, in the 18-month period following its Jan. 1, 2011 conversion shares fell by approximately 60%.

Another key point is that commodity prices, exchange rates, and the weather are beyond Enerplus' control. Although the company maintains a fairly impressive mix of product -- 52% natural gas, 44% oil, and 4% natural gas liquids  -- it also has to be nimble enough to adjust its production to periods of commodity-based decline. For example, if natural gas prices dipped below $2/MMBtu again, as they did in 2012, there's not much Enerplus would be able to do to shield its production in the Marcellus Shale from feeling the pinch. Similarly, if a warmer winter means less energy usage, then the demand for natural gas and other energy sources could drop, negatively affecting a number of asset suppliers along the way.

Enerplus Canadian

Source: Enerplus.

Finally, there's the execution risk of developing its natural gas and oil sands assets in Canada. Although the company is only toting around $1.02 billion in net debt, its capital expenditures in that country over the coming years to develop its acreage could weigh on its bottom line and investors.

The Enerplus advantage
The first thing Enerplus investors need to understand is that while there is commodity-based risk involved with its production, the company attempts to mitigate this risk through hedging its production to ensure a minimum level of cash flow on a forward basis. Based on its first-quarter results, Enerplus has 60% of its crude oil production and 45% of its natural gas production hedged this year. In 2015, that figure drops to 10% of its forecasted oil production and 20% of its forecasted natural gas, though this figure is expected to rise as the year presses on. With a minimum level of cash flow expectation due to these hedges, Enerplus is able to pay out its dividends with some degree of confidence, as well as establish capital expenditure budgets that it can actually stick to and to which it has decent long-term visibility.

Enerplus Pipe

Source: Enerplus.

Also, as Foolish energy analyst Matt DiLallo pointed out just last week, Enerplus' push into downspacing could give the company production yield advantages that its peers simply aren't seeing. Downspacing, or the idea of placing more than one well within a traditionally defined well space, helped yield 64,000 barrels of oil in a 26-day test on Enerplus' Ribbon well. As Matt notes, this roughly 2,500 barrel of oil per day yield would place it among the highest productivity wells within its Bakken portfolio of wells and may give it a way of getting more/quicker yield out of its own Bakken acreage.

Another point of contention is that the Bakken Shale represents some of the highest quality crude oil found in the U.S., and as such Enerplus has a number of options available to receive the best possible price for its recovered oil. When there are divergences between Brent and West Texas Intermediate, Enerplus can simply choose to ship its crude by rail past Cushing, Okla., to Louisiana, where it can receive the Brent price, minus shipping costs. When that's not an option, shipping directly to Cushing or even selling at the wellhead could make sense. The point being that Enerplus is sitting on prime acreage that it's able to use to its advantage.

Show me the money!
But if there's one carrot that Enerplus dangles over investors month in and month out, it's the company's dividend. That's because it pays its shareholders a stipend each and every month! Although its payout has fluctuated wildly since 2011 when it changed its status from a trust to a corporation, current shareholders over the past year have been privy to payouts ranging from $0.0805 per share on the low end, to as much as $0.089 in May 2013. Over the trailing year, this has equated to approximately $1.01 in payments received for a cumulative yield based on yesterday's close of a U.S. Treasury-thumping 4.7%.

Graph by author, Source: Nasdaq.com.

While it's certainly possible this dividend will remain somewhat volatile over the coming years as Enerplus initiates new projects in Canada and attempts to squeeze as much production as is imaginable out of the Williston Basin and Marcellus Shale, I suspect its steady cash flow and improving oil production should allow for it to maintain a healthy yield in the 4%-5% range.

If you're after more high-yield dividends like Enerplus, check out these handpicked income stocks by our top analysts
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.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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.

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