Volatile market produces a dividend winner

This Italian oil company saw a slight drop Monday that created a perfect entry price.

By Jim J. Jubak Mar 26, 2013 9:19AM

Natural gas plant Kevin Burke CorbisWay back on March 12, I promised that I was going to add a stock to my dividend income portfolio soon (on March 13, I said). Well, I didn't make the add then and I've been waiting for the predictable volatility of this market to give me a better entry price. I got that price Monday and I'm finally making my add to that portfolio.


I'm going to take advantage of Monday's 1.6% drop to recommend buying shares of Italian oil company Eni (E). It's not surprising that shares of Eni were down Monday -- the Milan exchange FTSE MIB index closed down 2.5% today in reaction to the Cyprus "solution."


But Monday's drop brings the total decline since the Jan. 17, 2013 high to 10.9% and it pushes the dividend yield close to my 5% dividend income buying target. (The yield was 4.95% on March 25 based on the paid September 2012 dividend and the declared May 20, 2013 dividend.)


And I think you might even get some growth out of this oil stock. The company is the largest producer of oil and gas in Africa of any of the international oil companies. And with Africa showing some of the most interesting new finds in the world -- like the huge Area 4 natural gas discovery (an estimated 75 trillion cubic feet of natural gas) in Mozambique, Eni has a very attractive growth path. (Eni has agreed with Anadarko, another big player in natural gas in Mozambique, to build a plant to liquefy and export natural gas. That's likely to prove a very expensive venture because almost all infrastructure for the plant will have t be built from scratch in Mozambique.)


What's reassuring to dividend investors about Eni is that much of its forecast of increased production -- 600,000 barrels a day by 2016 -- will come in the 2013 to 2014 period. In fact, 75% of new production forecast by 2016 will come in 2013 and 2014. (For example, the giant Kashagan field in the Caspian Sea is expected to start production in June 2013. The field is thought to be the largest discovered in the last 30 years.) That will help diversify the company's production and lower Eni's risk from its production in volatile countries such as Libya. And it should give the company plenty of cash flow to cover dividends and share buybacks even after capital spending.


Eni doesn't always get the most out of its assets. The Italian government's 30% stake means that Eni is, for what amounts to political reasons, engaged in businesses such as chemicals and electricity production that don't have very attractive returns. To me that says I wouldn't want to make this a long-term holding while I waited for growth to compound. But at the right moment and at the right price, this is solid dividend play with some price upside for a two- or three-year period.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. When in 2010 he started the mutual fund he manages, Jubak Global Equity Fund (JUBAX), he liquidated all his individual stock holdings and put the money into the fund. The fund may or may not own positions in any stock mentioned. The fund did not own positions in any stock mentioned in this post as of the end of December. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here
Tags: E
20Comments
Mar 26, 2013 5:09PM
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I have lived in Italy for many years. I even completed my internship in an ENI refinery. The company is corrupted by unions, bad management, bribes and political intrigue. Italy unfortunately is a bankrupt country and I wouldn't touch any investments there. Any investor that is interested in the Euro zone can buy the oil giant Total which has a 6% dividend and operates in a more stable country like France. With all due respect to Mr. Jubak who I read and with great respect for his stock market knowledge I think that an American investor who is not acquainted with the Italian economic environment should stay away.  

Mar 26, 2013 7:06PM
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Don't take stock buying advice from MSN. Don't take stock buying advice from anyone who isn't a successful investor themselves. And even then, proceed with caution.
Mar 26, 2013 4:47PM
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I don't think I would buy any European Stocks right now - They have a long way to go.  At somepoint I will jump back in to Europe but it will be through an ETF and when I believe things have bottomed out and I don't see that right now. So for now - there are pleanty of good stocks right here in the good old USA !
Mar 26, 2013 4:08PM
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I like dividend stocks, but I don't buy them only for the dividend.  To me you need dividend stocks to ahve gorwing dividends and a growth story for earnings in geneal.  Without a growth catalyst, to a degree the dividend is at risk.  I think everyone has seen an electric utility stock with a 75% payout and very little EPS growth cut their dividend in half on a hicup in earnings.  With growth comes security.

 

So go look again for a dividend payer with growth.  I realize the author said eni was not a long term holding, but I then ask why bother, move on to a grower with a dividend.

Mar 26, 2013 6:53PM
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Hmmm, this stock was going to be a winner....... 5 years ago ..........and then it

tanked from the 80's to the 40's.

 

Dividend looked great, but I loss some bucks on this one back in 2009.

Glad I sold. Lesson learned for me. It was widely recommended by the usual

suspects. Be careful out there.

 

"The return OF your principal is more important than the return ON your principal."

Will Rogers

Mar 26, 2013 6:17PM
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Jim, Jim, Jim....

Still giving out the poor advice, just like in 2008, 2009, 2010

Look back at your VLO recommendation before it went from 80 to 25.  But a good dividend.

This guy has no credibility.

Mar 26, 2013 7:17PM
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Don't mean to pile on here, but a Morningstar scan of the record of Mr. Jubak's picks is pretty revealing. And while I have enjoyed his writing for sure, I am fortunate to not own shares in the fund he manages. Although it is a fairly new fund, he has managed to be in all the wrong places during this positive time for stocks.
Mar 27, 2013 10:06AM
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Do not forget that the Italian government will withhold 20% of that 4.95% dividend paid to U.S. citizens.
Mar 27, 2013 12:08AM
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I would think there might be a better Oil patch pick then Italy..?? In the Foreign arena..

 

One of our Oil plays is Statoil (STO) for a foreign position, pays about 4%, and very stable Company, at least as far as I know yet...Does not have much growth...But they are in aquiring and deal making modes.

And I still have to question the idea of investments, in somewhat unstable Italia..

Mar 27, 2013 1:52PM
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My oil stock that I bought into in 2009 is EPD. Not a true oil major, but a oil and gas play. Bought in at $28.70 a share, and it's been cha-ching ever since. Consecutive dividend increases, or rather consecutive distribution raises, as it's a MLP (Mater Limited Partnership). Not quite a 5%, but consistent, and now it's a $58 stock. Sorry JIM, i'll keep my money  in the USA, and invest here for now. You want foreign exposure, go with SDRL, and get close to a 9% dividend.

  If you follow Jims, Anthonys, or Bill Fleckinsteins advice here in MSN money, you are destined to lose a lot of money.

Mar 27, 2013 12:00PM
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Go with something else, maybe APC, RDS.B, SU, TOT, or STO!
Mar 27, 2013 1:48PM
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As our fed. government prints more money, just wait till inflation kicks in for the USA and destroys our economy!  Day of reckoning is almost upon us.  Thank you Obama.
Mar 27, 2013 6:28PM
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I am the 17th person to post a comment on Jim's suggestion to buy Eni.

Here is my comment:
NOT ONE OF THE PREVIOUS 16 COMMENTS WERE POSITIVE ON THE BUYING ENI NOR WERE ANY OF THE COMMENTS POSITIVE ON MSN.

WHY ?

Probably because it is generally bad advise.



Mar 27, 2013 6:10PM
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I respect Jim J., but this is a poorly researched company and article.  Eni pays dividends only twice a year, not quarterly like nearly all U.S. stocks that pay dividends.  Eni has only paid dividends since 2009.  Worst of all, it pays a different dividend each time, from $1.28 to $1.66, up and down like a yo-yo!  Bad call, stay away.  
Mar 27, 2013 10:18AM
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This market is all Smoke and Mirrors !  The market has become a Criminal Casino baiting players into investing their hard earned money! When this market collapses only the top players will reap the profit and the rest will be left holding the empty bag ! CRASH !  TAKE YOUR MONEY AND RUN !!!!  YOU ARE ON THE HOOK !
Mar 27, 2013 2:53PM
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First pay off your toys. Try to stay debtfree.It is difficult to be debtfree,but go one item by item.

It is better then paying interest to anybody Nobody is paying interest to savers and there are

no investment return or gains.

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