by Robert Hauver
The Energy sector continues to lead all other sectors in 2014. As of 7/16/14, this sector, as measured by the XLE etf, was up 12.73% year to date, vs. 7.16% for the S&P500, and only 3.3% for the DOW. The XLE etf is dominated by large cap dividend stocks, such as Conoco Phillips, (COP), which is its 4th largest holding, after Exxon, Chevron, and Schlumberger.
When looking at performance, however, the majors, such as Exxon and Chevron, have greatly underperformed independent Conoco, which is up over 22% so far in 2014, vs. gains of only 5.2% for Chevron and 2.6% for Exxon.
COP also has the second highest dividend yield in the group, at 3.39%, having just raised its quarterly dividend from $.69 to $.73.
We screened for other dividend paying independent oil & gas stocks, to see if there are some other worthwhile outperformers in that sub-industry. We came up with Delek Logistics LP, (DKL), a relatively new, (NOV 2012 IPO),small cap high dividend stock, which we recently added to our High Dividend Stocks By Sectors Tables.
Dividends/Distributions: After spinning off its refining division, Phillips 66 (PSX), in 2012, COP has gone from paying $.66 to $.69, and now $.73 a quarter. DKL has raised its quarterly distribution 5 straight times since its IPO.
Options: Although COP just went ex-dividend, you can still earn an attractive options yield on it, via selling November 2014 covered calls, which will also allow you to either capture the next quarterly dividend, in October, or get paid even more $ if your shares get assigned. DKL has a much higher option yield, but its shares are much closer to its strike price.
Our free Covered Calls Table, which is updated daily, offers more info for this and over 30 other call trades:
Here are the 3 major scenarios for the DKL call trade:
With COP up over 22% in 2014, a more cautious strategy is to sell cash secured puts, at a strike price below its share price. This Nov. 2014 $85 put option trade offers an 11%-plus annualized yield, and a breakeven of $81.70. The $3.30 put premium you’d receive is over 4 times COP’s next $.73 quarterly dividend.
You can see more info for this and over 30 other put trades, in our Cash Secured Puts Table.
Earnings: DKL looks undervalued on a PEG 2014 basis, but not on a 2015 PEG basis:
COP has a higher 2014 PEG, but it is still below 1, and indicates some undervaluation. However, analysts are forecasting slight EPS contraction of -.15% in 2015:
Valuations: DKL currently has a negative book value, but this is due to non-cash depreciation charges.
Disclosure: Author owned no shares of COP or DKL at the time of this writing.
Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.
Copyright DeMar Marketing 2014. All rights reserved.