There is a widely held belief that the world will soon turn almost exclusively to electric vehicles. This expectation leads to the belief that global oil demand will crash, and that the crude oil energy chain from oil well to internal combustion fuel tank will soon collapse. A closer look at even the more aggressive EV sales growth projects show that crude oil demand will grow well into the 2030’s. A contrarian investment approach to the news bite belief in electric cars can literally pay excellent dividends.
Last week Royal Dutch Shell (NYSE: RDS.A, RDS.B) made presentations in London and New York. The presentations included the company’s forecast energy production and consumption scenarios for the next several decades. The Financial Times describes the Shell forecasting approach as “more rigorous than many.” The FT writers made this observation:
“One conclusion from Shell’s analysts is that they find it very hard to see a peak in oil demand emerging before the 2030s, and even then it will be only if “all the stars are aligned”. For all the excitement over electric vehicles, Shell expects them to have little impact on oil demand in the coming decade. A rise in electric car sales from less than 1 per cent of the world market next year to 10 per cent by 2025 would displace less than 800,000 barrels per day of world oil demand, or about 0.8 per cent of total consumption.”
Most investors are not aware that a half-decade after major and minor auto manufacturers started offering full battery powered cars, total annual sales are less than one-percent of global vehicle sales. As noted above, it’s an aggressive forecast that EV sales can grow to 10% of the total in just seven years. Even if that happens, those EVs will displace less than one percent of total crude oil consumption. Both the International Energy Agency energy consumption outlook shows annual oil demand to continue to grow through 2040. The sales of EV’s just slow the demand growth as opposed to the perception the electric car sales will reduce crude oil consumption.
This means that for at least another two decades the planet will need oil companies to continue to find and produce a growing supply of crude oil. As an income stock researcher, my recommendations to play this need for crude oil are through dividend paying energy infrastructure companies. These businesses provide the gathering systems, pipelines, land and sea terminals and other assets necessary for a barrel of crude to move from the wellhead into a car’s gas tank as gasoline. Because of the difference between belief and reality outlined above, this sector offers some tremendous yields combined with growth potential.
One way to invest in energy infrastructure is with the Tortoise Energy Infrastructure Corp. (NYSE: TYG). TYG is a closed-end fund that invests in energy master limited partnerships (MLPs) and other energy infrastructure asset owning companies. The fund launched in June 2004 and has steadily increased the quarterly dividend. The payout to investors has never been reduced. The fund has produced a positive total return seven out of the last eight years. Currently TYG yields 9.1%.
High yield energy investments should be core holdings for any dividend investor looking for a serious and reliable income stream. And I have added a few to my Monthly Dividend Paycheck Calendar. One of my energy holdings even pays a mouth watering 22.7% yield.