Dear Investor,
It seems we are going through several years of constantly hearing about the latest crisis – such as the pandemic and war – and we must figure out the best course of action.
In part because of this most recent crisis, much of the stock market has fallen to correction territory. But there are two themes that will thrive and profit over the coming months…
I am sure you’ve noticed that energy commodity prices have skyrocketed. WTI crude oil is pushing $100 per barrel. Oil producers recently reported outstanding 2021 fourth-quarter results. Those profits came from a period when oil averaged in the $60s.
When first-quarter earnings come out in April and May, the upstream companies will report oil selling for $90 or more. Most of the extra $30 per barrel will fall straight to the bottom line.
Last year, quite a few upstream producers started to pay variable dividends based on their profits. These companies have declared very large dividends over the previous few quarters. The payouts will be even greater for the upcoming quarters.
Here are a few upstream oil producers paying variable, profit-based dividends:
• EOG Resources Inc. (EOG)
• Pioneer Natural Resources Co. (PXD)
• Diamondback Energy Inc. (FANG)
The other theme to keep an eye on are interest rates.
The Federal Reserve will soon start an extended period of increasing interest rates to fight inflation. Higher interest rates will hurt a lot of companies, but will help others. Business Development Companies (BDCs) are a group of stocks that will thrive with higher rates.
BDCs operate under special rules that govern how they operate. Congress created the BDC structure to provide capital for small to medium-sized corporations. A BDC makes loans to its customers and sometimes takes equity stakes in the client companies. The rules limit how much debt a BDC can use, so higher interest rates have a minimal effect on expenses.
However, the loans made by a BDC will usually have a variable interest rate. The BDC will charge more and earn more interest income as rates go higher. The rules require a BDC to payout at least 90% of net investment income as dividends to shareholders. So rising rates will grow BDC income, which in turn will produce larger dividends.
Although its one of the largest BDCs by market cap, many investors are not familiar with Owl Rock Capital Corp. (ORCC). Last week Owl Rock Capital reported fourth-quarter net investment income that was 35% higher than what the company earned for the 2021 first quarter. ORCC yields 8.5%, and a dividend increase is in the cards later this year.But that’s just one stock. If you want 30 more well-positioned, high-paying income stocks – and a 36-month plan that can set your portfolio up to pay your bills for life – click here.
