A recent retirement survey revealed another familiar but depressing picture: Baby boomers, folks aged 55-65, have not prepared for their retirement. Reasons for this vary, but the bottom line is boomers will be working longer and living less comfortably than originally hoped.
By one estimate, the average boomer is $500,000 shy of necessary retirement savings. So how can you get caught up on your retirement? To start, here are three income stocks to generate some retirement cash from America's growing energy industry.
Production and dividend growth through acquisition
Vanguard Natural Resources (NASDAQ: VNR) does not mince words; it grows by acquisition. These acquisitions, in turn, support a steady, slowly growing distribution. Vanguard will not find the next Bakken oil play. It will find mature oil and gas fields with known production profiles. It may not be exciting, but if you want reliable income, exciting is not a virtue.
So far, this has worked out well. The distribution grew from $1.89 per unit in 2008 to $2.79 for 2013 for a current yield of 8.8%. According to its latest quarterly earnings report, the distribution coverage ratio remains above 1.0, a healthy sign. While its latest earnings were unspectacular, they didn't disappoint, either. These results reflect the company's philosophy and objectives.
Looking ahead, Vanguard management anticipates more of the same. The company plans to spend money on its current assets to maintain cash flow and bid on acquisitions to grow cash flow. Last quarter, Vanguard bid on 20 different assets. No mention of any bids being accepted. That's not a bad thing.
As Vanguard president and CEO Scott Smith said, "we would rather buy nothing than spend dollars on a marginal transaction that isn't accretive." So while Vanguard maintains its assets and looks for new ones, it does so with cash flow in mind and not just growing for the sake of getting bigger.
Decent yield with growth potential
Unlike many midstream companies, Energy Transfer Partners (ETP) hasn't grown its distribution much over the years. That said, if current income is a priority, the company's 6.9% yield deserves a look. To anticipate the question of why the distribution hasn't grown, the simple answer is Energy Transfer Partners operated on an energy sales model rather than a fee-based model to ship natural gas. This exposed the company to fluctuations in natural-gas prices. With the decline in gas prices, it was tough to grow the distribution.
Company management took action in 2012. First, it began shifting to a fee-based leasing business model for its pipeline services. This helped the company achieve positive earnings surprises for three of the last four quarters. Second, Energy Transfer purchased Sunoco and invested in Sunoco Logistics Partners and Citrus Corporation. These expand Energy Transfer's more lucrative oil and natural gas liquids operations.
These efforts have paid off. The stock climbed from about $41 a share a year ago to more than $53 a share today. The distribution now stands at $3.62 a share, up from $3.58 a share where it had languished for more than three years. Adjusted EBITDA and cash flow available for distribution significantly increased over the previous year's results. Lastly, the improved finances allow Energy Transfer to pursue liquefied natural gas exports and other expansion projects. These projects should fuel future distribution growth.
Big midstream company with a track record
When discussing midstream companies, it's hard to find much wrong with Enterprise Products Partners (EPD 0.35%). The company operates a variety of pipelines and other energy-moving assets. Additionally, the company operates storage facilities, and an expanding natural gas liquids exports portfolio.
These assets have allowed Enterprise to increase its distribution for 37 consecutive quarters while maintaining a solid coverage ratio of 1.2 for the most recent quarter. The current distribution yields about 4.4%. The stock hasn't done too badly either, climbing from $22 a share in the beginning of 2009 to its current price of about $62 a share.
The company plans on spending $4.5 billion on growth projects that should come online in 2014. Enterprise also anticipates growing propane exports to Central and South America. Once the Panama Canal expansion is complete in 2015, Enterprise should compete with Middle East suppliers for the Asian propane market. Gasoline exports also figure in Enterprise's future. These expansion plans bode well for the future of the company.
In buying Enterprise, you pay a premium for a company with an enviable track record of growing distributions and capital gains. You pay for the safety of $58 billion in market capitalization and limited debt. You pay for a company that, so far this year, has $900 million in retained cash flow available for distribution to invest in future projects.
Final Foolish thoughts
Reality may be slowly dawning on Americans heading into retirement: Failure to plan ahead will come back to haunt you. Fortunately, there are investments for older Americans that should help retirement income. For immediate income, there is Vanguard with its 8.8% yield. For safety, there's Enterprise and its growing distribution. For those willing to risk a little in a turnaround story, Energy Transfer Partners offers a decent 6.9% yield with prospects of growing distributions and capital gains. Energy Transfer may be the best total return investment of the lot.