This week we feature Tim Plaehn, dividend and income investing expert and editor of The Dividend Hunter, a new income service for investors looking to capture yield and gains from the hottest dividend stocks. Prior to joining Investors Alley Tim was an F-16 pilot, stock broker, certified financial planner, and contributor to USA Today, The Houston Chronicle, Seeking Alpha, and many others.
The political crisis triggered by Russia’s takeover of Crimea and fears of greater expansion plans by Putin have finally forced the Obama administration to focus on energy policy and stop dragging its feet on approvals for new natural gas liquefaction and export facilities.
To build an LNG export facility approval must be obtained from the U.S. Department of Energy to export to non-free trade agreement countries and an additional approval is required from the Federal Energy Regulatory Commission, which bases approval to start construction when environmental, safety and other regulatory hurdles have been met. The FERC approvals have bottlenecked the construction of LNG export facilities and only 8 out of 30 applications have approvals and only one is currently under construction. It has taken years for companies to obtain the necessary approvals and then it is another multi-year period to get a project constructed and in the business of exporting liquefied natural gas.
It seems inevitable that Europe must eventually turn to the U.S. for a larger portion of its natural gas needs, and while the approval process from the government is starting to speed up, the best investment opportunities are with the companies with approvals in hand and already into the construction process.
Sempra Energy (NYSE: SRE) has been approved to add export capability to its Cameron LNG terminal in Louisiana. This terminal should become one of the first to come online and be able to export from the abundant U.S. natural gas supplies. Sempra combines regulated power utility businesses with natural gas infrastructure assets to offer a stable, dividend paying investment while waiting for the export facility to become fully operational later in this decade. Sempra currently yields 3.6%.
Dominion Resources (NYSE: D) is another regulated utility company with approval to build an LNG export terminal. Construction has started on the basic infrastructure for Dominion’s Cove Point, Maryland facility. Cove Point will be the only LNG exporter on the East Coast, giving easier access to the gas coming out of the Marcellus shale play and it is closer to the gas hungry European markets. Dominion shares yield 3.4%. On March 31, the company filed an initial prospectus to spin off a master limited partnership (MLP) company that will own Dominion’s energy transport and storage assets along with the Cove Point equity. MLP’s typically yield more than utility stocks and D share owners will receive shares of the new company when the spin off occurs.
Cheniere Energy (NYSE: LNG) owns a LNG export facility already under construction and liquefied exports are forecast to start in 2015. The Cheniere Energy share price has doubled over the past year as investors rushed in to participate in the first company to start exporting American natural gas. Cheniere’s MLP subsidiary, Cheniere Energy Partners LP (CQP) allows income focused investors to participate in LNG exports through dividend earnings. CQP yields 5.6% and the distributions should start to increase when actual exports hit the water from the company’s Sabine Pass terminal. Only one-third of the terminal’s capacity will be operational next year, leaving room for future growth.
While it may be years before Sempra and Dominion start to actually export LNG, just the prospects of export profits combined with the political situation could easily drive these stocks much higher if tensions rise between Russia and the rest of Europe. In any case, these companies pay attractive yields that pay you to wait for an even bigger payday.
Are you investing in LNG export companies looking to take advantage of Europe’s shift toward the U.S. for natural gas? Or do you think Russia will start to play nice once they realize they’re losing business? Are there other LNG exporters you think should have been in the list above? Let me know what you think. Feel free to drop me a line at [email protected].