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