While there are rumors that interest rates are about to start heading higher, as it stands right now, it's a terrible time to be looking for yield. That is unless of course you know where to look. Some of the best-yielding stocks today are oil and gas companies that are built to provide income to investors. That's why, as a dividend investor, you really should get to know the following three names.
Vanguard Natural Resources (NASDAQ:VNR)
This upstream oil and gas company is structured much like a master limited partnership, which are well-known for being generous to dividend investors. One of the big differences is that Vanguard has no general partner, which means that investors don't have to see income sent elsewhere through incentive distribution rights. Instead, all of the company's income produced from its oil and gas wells gets paid out to investors on a monthly basis. With a yield of just over 8.5%, Vanguard trounces most of your other income options.
One of the downsides is that Vanguard's reserves are rather gassy; however, the company has more than a decade's worth of oil and gas in the ground from which to produce income for investors. Not only that but the company can continue to grow by acquiring new oil and gas properties or drilling on its acreage. The bottom line is that Vanguard is a great dividend stock that you really need to get to know.
In one sense LinnCo is very unique and in another it's a close cousin to Vanguard. You see, whereas Vanguard's assets are actual oil and gas reserves, LinnCo's only assets are units of LINN Energy (NASDAQ:LINE). That means LINN does all the heavy lifting of producing the oil and gas and simply passes along the income to LinnCo. The other key difference is that LinnCo investors get a regular Form 1099 for taxes while investors in both LINN and Vanguard need to put up with those pesky Schedule K-1's come tax time.
As a dividend investor the great thing about LinnCo is its nearly 8% yield, which will soon also be paid monthly like Vanguard's. That income won't be drying up anytime soon as LINN will soon have 6.4 trillion cubic feet equivalent of reserves which will be producing for the next 16 years. Also like Vanguard, LINN can acquire additional reserves to keep that income flowing indefinitely.
BP Prudhoe Bay Royalty Trust (NYSE:BPT)
The last name that dividend investors really need to know is BP Prudhoe Bay Royalty Trust. Like LinnCo it doesn't actually own the oil and gas assets from which its income is derived. Instead, its assets are overriding royalty interests in oil produced in Alaska. The other big difference here is that you can only trust the income from this trust until about 2029 when the wells are expected to run dry.
The income here is very generous; it's paid an average of $2.22 per quarter over the past year, meaning investors have enjoyed a yield of about 9.5%. While that's a lot less than the yield from other trusts, such as the SandRidge Mississippian Trust I (NYSE:SDT), BP Prudhoe Bay has also been around a lot longer which gives it a much stronger track record. For example, the SandRidge Trust posted a significantly lower distribution last quarter after recent wells experienced higher natural gas volumes as well as lower oil production, which hurt margins. While the BP Prudhoe Bay distribution does fluctuate from quarter to quarter there is enough of a consistent track record that you'll have a general idea of what to expect.
Final Foolish thoughts
These three stocks are a dividend investors' dream -- expect them to pay around 9% annually. Better yet, all three have the potential to pay you even more if oil and gas prices head higher. That's why these are three companies that long-term-income investors really need to get to know.
Fool contributor Matt DiLallo owns shares of LINN Energy, LLC and LinnCo, LLC. 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.