Further reducing energy exposure

Time to sell Enbridge Energy, but not because energy prices are collapsing.

By Jim J. Jubak Dec 10, 2009 4:13PM

Jim JubakI’m going to continue to diversify my Dividend Income Portfolio by selling Enbridge Energy Partners (EEP). It’s one of three pipeline master limited partnerships in the portfolio. 


The sale of this position plus the sale of Natural Resource Partners (NRP) earlier reduces the energy exposure of this portfolio to a still-hefty 40% from a previous 60%.


I’m not worried about a collapse in energy prices in 2010, but I don’t see a significant rally in oil prices from current levels and natural gas seems stuck near lows for a while because in the short-tem supply seems ample to meet recovering demand. (For my very different take on long-term energy prices see this post).


I see Enbridge Energy Partners with its bet on growing volumes of oil from Canadian oil sands as especially exposed to stagnant energy prices. Estimates are that it takes a price of $70 a barrel to make development of those resources attractive.


That’s important because stagnant energy prices and only slowly recovering demand in 2010 will make it hard for energy master limited partnerships to increase earnings enough to significantly increase dividend payouts. 


In the second half of 2010, I expect interest rate increases from the Federal Reserve at the short end of the rate curve to add to pressure on their prices that income vehicles are already feeling from increases in long-term interest rates.


In other words, I think the best kind of income stock to own in 2010 will be one that can show a history of rising dividends and the solid prospects for continued increases. I’m willing to trade some current yield, in fact, in exchange for the prospects for dividend increases.


I’m selling Enbridge Energy Partners out of my Dividend Income portfolio with a gain of 2.3% since I added it to the portfolio on December 18, 2007. Add in dividends received during that holding period, and the total return comes to 20%.


Jim Jubak plans to sell his personal position in Enbridge Energy Partners three days after this is posted.

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125
125 rated 1
264
264 rated 2
485
485 rated 3
679
679 rated 4
640
640 rated 5
617
617 rated 6
632
632 rated 7
493
493 rated 8
276
276 rated 9
153
153 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.