Energy is the lifeblood of the global economy. Factories need energy to run, and goods need fuel to get shipped.
So it is wise for investors to keep an eye on trends in the energy sector as a way to gauge the status of the economic recovery — or, when trends are ugly, a sign that investors might be in for a bumpy ride.
There are a host of indicators and headlines relating to oil and energy consumption, but here are three recent reports I found that I think are particularly telling.
All three should set off warning bells, and investors should take note:
Diesel Consumption
The UCLA Anderson School of Management teams up with employment services firm Ceridian Corporation to track real-time diesel fuel consumption data. The pair’s most recent report shows an alarming decline in use of the key fuel.
Specifically, the “Pulse of Commerce Index” — that’s the official name for the diesel data — fell 1.7% in January following a 0.4% decrease in December. January’s figures are not just down month-over-month, but also off 2.2% from last year.
Click to Enlarge Most disturbing? The diesel index shows almost zero growth since the summer of 2010. Check out the chart.
“It seems difficult to square the behavior of the PCI with the evident improvement in a number of economic indicators, most notably the increase in payroll jobs and the decrease in initial claims for unemployment,” said Ed Leamer, chief economist for the index.
In short, something doesn’t add up.
This index is not a magic measuring stick. But diesel obviously is a crucial part of the national economy and a good proxy for rail traffic and truck traffic … and thus worth paying attention to.
Gasoline Deliveries
Click to Enlarge As with diesel, broader gasoline deliveries reflect the ebb and flow of the economy. Check out this chart about monthly total U.S. deliveries as measured by the U.S. Energy Information Administration:
This data is most interesting because it is raw. It is not “seasonally adjusted” or modified based on flash estimates and revisions. It is, for all intents and purposes, real demand.
The biggest takeaway? Retail gasoline deliveries are well below 1980 levels, with no sign of rebound, despite the fact that the recession is “over.”
Now, we have to consider that these are deliveries, not raw demand. So the phenomenon takes into account the general trend that gas stations are stockpiling much less than they used to — likely because margins are so tight and there isn’t a lot of cash on hand to tie up in inventories. Stations are not in the storage business at all these days.
But it’s hard to blame everything on a drop in inventories alone. In November 1983, gasoline deliveries were 51.1 thousand gallons per day. In November 2010, the total was 42.8 thousand gallons daily. Even more disturbing? Just a year later, in November 2011, they were 30.9 thousand gallons.
No Leaders in Alternative Energy
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Energy isn’t all about fossil fuels, cars and broad demand. So-called “green collar” jobs are part of what should be an emerging industry as alternative energy gains popularity and as Americans move toward cleaner sources of power.
Except there’s no money in green energy. So companies are going under and jobs are being eliminated, not added.
Take First Solar (NASDAQ:FSLR), the biggest U.S. solar company, which ousted its chief executive officer in October and still is seeking a replacement. Few people want the job, since FSLR stock has gone from over $310 per share in 2008 to a mere $40 right now. Earnings per share have fallen from $7.68 in 2010 to $5.80 in 2011 to a projected $3.93 in 2012. Not good for the heavyweight of U.S. solar.
Wind isn’t much better. At Vestas Wind Systems (PINK:VWDRY), the largest turbine maker, the chairman and finance director are leaving after the company cut sales forecasts twice in three months.
If there is trouble filling jobs in the corner office, that’s not very inspiring for rank-and-file employees.
Throw in the bankruptcy of Solyndra LLC, which left the U.S. government responsible for $527 million in debt, and things are ugly in alternative energy.
Just consider this telling quote from an alternative energy headhunter, trying to find leaders for these struggling companies:
“It’s becoming significantly more difficult to attract people into this market,” said a clean technology recruiter at Korn/Ferry International. “In my 15 years, this is probably the most difficult time to recruit.”
Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.
High Dividend Stocks For 2011
Go Global for Bigger Dividends, Growth
How is a prudent, conscientious person supposed to retire these days? The mutual fund industry tells you to invest in their low-dividend (or no-dividend) funds and hope the capital gains will be enough to carry you through. As we’ve seen in the past decade, though, the gains don’t always materialize when you need them. What then?High-dividend stocks. Rather than buying an index fund yielding only 1.8%, you should choose carefully among high-dividend stocks. And while there are dividend stocks on our own shores that may fit the bill, investors who are willing to look beyond our borders can find generous yields with greater growth potential.
Here are seven top global dividend stocks to buy:
High Dividend Stocks For 2011#1 – Cellcom Israel (CEL)
Recommended by: Richard Band, Editor, Profitable InvestingCellcom Israel (NYSE: CEL), Israel’s largest wireless carrier with 34% of the market, just declared its first quarterly dividend for 2011 — the equivalent of 85.7 cents (U.S.) per share. Annualized, that works out to a super-sweet yield of almost 11%!
CEL hands over virtually all its profits to shareholders as dividends, so there’s a chance the company may have to trim the payout in future quarters if business hits a speed bump. On the other hand, this “pay it all out” policy (similar to the approach taken by most U.S. master-limited partnerships) imposes rigorous capital allocation discipline on management. In short, Cellcom execs don’t waste money.
Buy dividend stock CEL on a pullback below $33.
High Dividend Stocks For 2011 #2 – Aberdeen Chile Fund (CH)
Recommended by: Bryan Perry, Editor, Cash MachineOne of my mega-themes for 2011 (and beyond) is the emergence of certain South American countries toward becoming developed nations. At the forefront of this movement, most would argue for Brazil, but within the past year, it has become evident that Chile might be the first to become a comparable neighbor to that of its northern counterparts, the United States and Canada.
Because many of the companies that thrive in the Chilean economy are not listed here in the United States, I find it suitable to embrace the Chilean investment theme with the purchase of the Aberdeen Chile Fund (AMEX: CH), a closed-end fund that has been a star performer in 2010. CH traded ex-dividend on March 29, and after hitting $23, it is now trading back down to support near $21 where a good entry point can be established while locking in a 9.61% dividend yield. Shares of CH should make their way back to $26. Buy CH up to $22.
High Dividend Stocks For 2011#3 – Telkom Indonesia (TLK)
Recommended by: Richard Band, Editor, Profitable InvestingThe mantra here is “free cash flow.” In recent years, Telkom Indonesia (NYSE: TLK), the dominant provider of both fixed-line and wireless communications in sprawling Indonesia, has poured huge sums into upgrading its networks. Now the company has the luxury of throttling back a bit.
Starting in 2011, each sales dollar (rupiah, actually) will generate more profit — along with a surge of cash that can be distributed to shareholders. I predict, in fact, that Indonesia’s largest telco will boost its dividend more than 30% by 2013 (from a 2010 base). That’s the kind of growth you want in retirement! Current yield, based on my estimate of 2011 dividends, is 4.8%. Buy TLK up to $36.
High Dividend Stocks For 2011 #4 – ING Asia Pacific High Dividend Equity Income Fund (IAE)
Recommended by: Bryan Perry, Editor, Cash MachineWe are witnessing the re-acceleration of the BRIC countries (Brazil, Russia, India and China) following a period of consolidated growth. The BRICs are enjoying renewed gross domestic product (GDP) expansion in the first quarter of 2011, especially China, and revving up for a strong year following a full six-month correction.
Pacific Rim countries will lead the way, making the ING Asia Pacific High Dividend Equity Income Fund (NYSE: IAE) an attractive buy after trading ex-dividend on April 1. With the stock sitting right on its 200-day moving average at $18.50, sporting a current dividend yield of 9.12%, it’s timely to pick up some shares. Buy IAE under $21.
High Dividend Stocks For 2011 #5 – CPFL Energia S.A. (CPL)
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It is a well-known fact that electricity consumption grows faster than the rate of growth of the economy. This is because as people build their wealth, they consume more. They buy bigger houses, they get more appliances and technology and such. Also, as industries enter a growth phase, they tend to use more power.
Because of the above characteristics, electric utilities in emerging markets are the first to see their businesses flourish. Brazil’s CPFL Energia S.A. (NYSE: CPL) distributes electricity to 6.4 million customers in about 570 communities, primarily in the states of Sao Paulo and Rio Grande do Sul. CPFL Energia also owns hydroelectric power plants and trades wholesale power in the open market and offers energy management services. Management estimates show that the company provides about 13% of Brazil’s electricity.
The company currently has a 6.9% dividend yield and should also benefit from a strong “currency tailwind” from the Brazilian real. The Brazilian real is a very strong currency as the central bank there maintains the highest real interest rates among major emerging economies. The shares offer a rare combination of both a high dividend yield and high growth rates, which makes them a great buy. Currently trading around $88, buy CPL on a pullback.
High Dividend Stocks For 2011 #6 – Telenor (TELNY)
Recommended by: Richard Band, Editor, Profitable InvestingWhy would you want to own a telco in Norway? For one thing, as a hedge against the ruinous financial policies of the U.S. government. Thanks to prudent management of the country’s oil revenues, Norway has run a budget surplus every year since 1995. The Norwegian currency (krone), in which Telenor (OTC: TELNY) reports its profits (and pays its dividends), is sounder than both the euro and the U.S. dollar.
But there’s more to this story. TELNY has expanded far beyond its Norwegian base, with mobile and broadband operations in Sweden, Denmark, central and eastern Europe, plus five Asian countries. As a result, little-known Telenor is one of Europe’s fastest-growing telecom businesses. Sales will likely pass $19 billion in 2011. Current yield: 4.2%. Dividends have nearly quadrupled over the past seven years. This year’s dividend amounts to only about half of TELNY’s estimated 2011 profits, so an increase of 10% or so seems probable when the board declares next year’s payout. Buy TELNY on a pullback below $49.
High Dividend Stocks For 2011 #7 – SeaDrill (SDRL)
Recommended by: Bryan Perry, Editor, Cash MachineSeaDrill Ltd. (NYSE: SDRL) is a unique opportunity for income investors seeking a pure play on deep-water drilling outside the post-BP spill in the Gulf of Mexico. The company was formed in 2005, and owns the most state-of-the-art drilling equipment in the entire industry that commands premium day rates. It is in big demand with utilization rates running near100% as big oil deposits become harder to find without going deep.
These guys operate all over the world in 15 countries on four continents, owning 54 rigs with exposure to only one rig in the Gulf of Mexico. Most of their drilling activity is off the coast of Norway and South Asia, so it has no exposure to the now unstable Middle East. However, news of ARAMCO in Saudi Arabia upping drilling production is hugely positive news for the oil and gas drilling sector. It confirms the belief that the worldwide drilling rig count will rise as well as day rates for the balance of 2011.
Shares of SeaDrill stand to trade significantly higher than its current price of $36.50, while paying a dividend yield of 7.5%. Buy SDRL under $40.
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