Drivers in the U.S. will burn 136 billion gallons of gasoline this year, according to government estimates. The U.S. aviation industry will consume 22 billion gallons of jet fuel, and the nation will use 62 billion gallons of fuel oil. And that assumes that the economy will expand by 2.4%. Kiplinger forecasts that gross domestic product will increase by 3.3%, so chances are good that we'll use more oil than the feds are forecasting.
No, oil is not going the way of film and floppy disks. We will continue to rely on it, and, eventually, its price will stop retreating. And so will prices of energy stocks. Kiplinger predicts that domestic crude, which fell below
If you're investing for income, though, you need to be in the right energy stocks. In particular, you should still focus on energy-related master limited partnerships. I can't think of another sector of the economy or another investment vehicle that is better suited for transferring cash directly from commerce to you. Yields from MLPs, which currently average 6%, dwarf the yields of 10-year Treasuries and the broad U.S. stock market, both of which pay about 2%. Plus, part or all of many MLP distributions qualify as tax-deferred returns of capital.
That isn't to say that the oil crash had no effect on MLPs. From its peak last
Of course, some energy MLPs fared worse than others. The biggest disasters were among exploration and production companies, which make up about one-fifth of the category. Consider the ongoing massacre of
My picks. If you want safe dividends and tolerable share-price volatility, focus on partnerships that move, process and store all the oil and gas that drivers and everyone else will continue to consume. My favorites are
At some point this year, money managers will conclude that the plunge in well-financed, dividend-paying domestic energy stocks is madness and start to rebuild stakes in them. I have always insisted that, like utility stocks and real estate investment trusts, energy-company shares are vital ingredients of income-oriented portfolios. I don't see that changing.
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Jeffrey R. Kosnett is a Senior Editor, Kiplinger's Personal Finance magazine.