The Only Way to Play Energy Nowhttp://www.fool.com/investing/dividends-income/2010/03/26/the-only-way-to-play-energy-now.aspx Austin Edwards
March 26, 2010
You and I both know it's coming.
And when it does, millions of us will look back on the past year longingly. Meanwhile, a handful of us will look back triumphantly.
$4 gas, here we come -- again!
Because let's face it: Over the long haul, demand for oil and gas will drastically outstrip supply. And the majority of that supply is controlled by a handful of obscenely wealthy foreign businessmen who, as old T. Boone Pickens points out, don't like us very much.
Point being, oil and gas prices will eventually recover -- and then soar to new highs. When they do, everyone's going to get pinched at the pump -- yet only a few will get rich.
Will you be one of them?
I've even picked up shares of the Energy Select SPDR, which counts oil and gas companies such as Anadarko Petroleum (NYSE: APC ) , Apache (NYSE: APA ) , and Marathon Oil (NYSE: MRO ) among its top holdings.
I've also had my eye on smaller, specialty energy players -- for example, seismic-data-acquisition companies Dawson Geophysical and tiny TGC Industries. They're both swimming in cash and are well positioned to shoot higher when the price of oil and gas finally rises. Of course, there's only one problem ...
You don't want to wait forever to cash in, do you?
No, I'm not referring to oil-services companies such as Halliburton, Schlumberger, or BJ Services (NYSE: BJS ) . Instead, I'm talking about a group of often-overlooked energy investments that make big money regardless of the price of oil and gas -- and that pay you big bucks to own them.
The only way to play energy now
MLPs were born out of two Reagan-era tax reforms instituted to spur the development of U.S. energy infrastructure. Consequently, nearly all MLPs are involved in the transportation, storage, refining, or processing of oil and gas.
Yet MLPs charge by the volume of oil or gas they transport, refine, and so on, so fluctuations in the price of the commodities have only a minimal effect on their earnings. And because they're organized as partnerships, they're not taxed on the entity level -- which, for reasons I'll explain in a moment, provides investors a huge tax advantage.
It also means that, by law, they have to pay out the great majority of their earnings to their investors -- hence their ultra-high yields (typically from 6% to 10%).
You can buy MLPs online or through your broker, and they trade on major exchanges right along with regular dividend-paying stocks -- the one exception be