General Electric (GE 1.05%) has been all over the news lately, with its dividend cut and financial worries front and center. Some analysts have even suggested that it's time to buy back into the stock, but with an uncertain future and a current yield of only about 3.3% -- assuming no further cuts -- there are better places for your money.
One place to consider is the oil and gas industry. Oil prices began to rise in 2017, even as GE's stock was falling, and now the industry is home to upbeat outlooks and healthy -- and safe -- dividends. If you're after an attractive yield without the drama, consider Apache Corporation (APA 5.38%), Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B), and Magellan Midstream Partners (MMP +0.00%).
General Electric, once a stock market darling, has been hit by an underperformance trend of its own making. Time to look for other stocks to buy. Image source: Getty Images.
When the going gets tough
Like most independent oil and gas exploration and production companies, or E&Ps, Apache Corporation has had its fair share of drama over the past three years as oil prices slumped. However, even as the company's rivals were cutting or even eliminating their dividends, Apache held its quarterly dividend steady at $0.25/share. That means Apache is currently yielding a best-in-class 2.9%.
That's not to say the company is completely without risk. While it posted solid Q3 and Q4 2017 earnings, thanks to rising oil prices, the stock has languished due primarily to delays in getting production at Apache's huge new Alpine High play off the ground. But even when Alpine High production comes online in earnest -- which should happen this quarter -- it will take some time for production to take off. That means investors may need to bide their time with the dividend for the year.
Beyond 2018, Alpine High production is expected to grow by leaps and bounds, and the company has other operations in Egypt and the North Sea that are also expected to continue to grow. For investors who can afford the wait -- and the inherent risks of E&Ps, whose fates are often tied to oil prices -- Apache represents an excellent opportunity at a bargain-basement price.
A solid giant
For those who prefer less-risky investments, there are plenty of big corporations in the oil and gas sector. One of the largest is Dutch behemoth Royal Dutch Shell, which not only has a huge market cap, but a huge dividend yield -- currently 5.8%.
Shell has done some things right that GE did wrong. Remember how GE made some investments that didn't pay off by beefing up its oil and gas holdings right before the bottom fell out of the oil market, and making the major acquisition of Alstom's power unit, which has since underperformed?
Well, Royal Dutch Shell made a big acquisition of its own in giant BG Group, but by snapping it up at a bargain price of "just" $53 billion during the oil price downturn, Shell gained critical exposure to the liquefied natural gas market -- which it expects will grow even faster than the oil market over the next decade. Unlike GE, Shell has been very successful at cutting costs to streamline its operations in a "new normal" environment of lower prices and demand for oil.
If you wanted a big company with a great dividend whose future looks rock solid, 30 years ago, you might have bought shares of GE. Today, you should feel comfortable buying Shell.
A mouth-watering yield
Even more so than oil majors, oil and gas pipeline master limited partnerships -- usually abbreviated to MLPs -- pay their investors hefty yields. But because of their unique tax structure, owning one can make filing your taxes more difficult. However, MLP Magellan Midstream Partners' current 5.6% yield may make the extra work worth it for a dividend investor.
Unlike GE's dividend, Magellan's payout is constantly growing. Its 2017 distributions were 8% higher than they were in 2016, and the company has increased its distribution every quarter since going public in 2001. And it doesn't seem to be at any risk of being unable to cover those distributions, with a 2017 coverage ratio of 1.2 times.
An excellent yield that's easily covered by a company with good prospects is a winning formula for continued outperformance.
Investor takeaway
As a GE shareholder myself, I'm very concerned about the company's current situation. And while I'm hopeful that things will get better at GE -- mostly because it looks like they can't get much worse -- I don't feel comfortable recommending the stock.
Instead, dividend-focused investors will be better off looking into Apache, Shell, and Magellan for more secure dividends at companies with clearer growth potential.
