Throughout my travels around the world there is one question I can count on getting from every audience, be it in the US, China, Europe, and even the Middle East: Where can I find some yield?
The favored answers are junk bonds, high-dividend equities, and emerging market sovereign debt issued by countries like double-digit yielding Brazil. In the US, yield-motivated investors have gravitated towards Master Limited Partnerships to focus their activities on the oil industry. The only problem is that over the last 14 years, crude has soared from $10 to $150, then back down to $90. It’s enough price volatility to leave owners reaching for the Dramamine.
There is a way to capture these eye-popping returns without having to take an “E-ticket” ride. That is to focus on MLP’s that only invest in the natural gas industry. Its 14-year price history saw it soar from $2 to $17, then back to $2. It now hovers around $3.70. The smart way to play here is to own securities that benefit from the increasing volume of natural gas production, and not the price.
The horrific downside risks that hang over oil investments are missing with that simplest of molecules, CH4. That means investors can lock these up in long-term portfolio’s without fear of them vaporizing when they are not looking, and let the, sometimes, double digit generous cash flows roll in. The great thing about gas is that it has already crashed.
Until very recently, natural gas was considered an energy source of the past. Up until the mid 2000’s, energy experts believed that our natural gas reserves had all but dried up and what was left was inaccessible. Hurried plans were made to import gas from the Middle East, with Qatar and other countries building extraction wells which would eventually supply the US and Europe.
Oil, alternative energy, nuclear, and coal became the focus of the media and equity research community. Due to sudden technological advances in hydro-fracking and dual-sleeve piping, this long-forgotten energy source is now at the forefront of energy development in the United States. Natural Gas is playing an increasingly crucial role in our overall energy makeup.