Oil stocks—and their fat dividends—are breaking out to new highs.
Question for you. If Fed Chair Jay Powell hadn’t printed a bunch of money over the past 14 months, would energy stocks still be this electric?
Chairman JP Prints Lots of Money
My take? No way. Their recovery would be (much) more muted.
According to the International Energy Agency (IEA)—the best and most unbiased source of industry information I know—world oil demand is projected to hit 96.7 million barrels per day this year.
Meanwhile, global supply is just 93.6 million barrels per day. Production was halted when the world shut down a spring ago. It’s coming back but more slowly than demand.
Drilling a new oil well takes months. Ramping up shale production from that well can take years. But a “stimmy check” can be cashed—and used to fill up an empty gas tank—in a matter of minutes.
So, demand outpaces supply and energy prices rise thanks to the printing press. A 3 million barrel per day shortfall is a big gap to make up. The price of oil is likely to keep climbing until that imbalance is resolved.
The Federal Reserve has “fueled” this supply deficit with its ample liquidity. We income seekers thank our Fed friends for lighting a fire under our favorite energy dividend stocks.
Thank you, specifically, for Contrarian Income Report favorite ONEOK (NYSE:OKE). This dividend darling has doubled since we added it to our CIR portfolio just 14 months ago:
A Fed-Fueled Dividend Double
And how about Exxon Mobil (NYSE:XOM)? The company is back in the mainstream news and, when it comes to Exxon, this is usually not a good thing.
Yours truly flipped bullish on Exxon two months ago. Since then, two (or three) “activist” investors won board seats at Exxon. I say “activist” tongue-in-cheek because from the tone of the coverage alone, it sounded like Greenpeace had taken full control of the operation.
In reality, investment firm Engine No. 1 put a former refinery CEO and a renewable fuels manager in the board seats. Hardly the end of Exxon’s oil and gas.
Are the new board members going to see eye to eye with the company’s current leadership? Of course not. But that’s an investing problem for another year.
For now, Exxon shares are going to trade with the price of oil. The trend for Texas Tea is up. Which is why Exxon shares are already up 10% since I recommended them less than two months ago.
Investing in 2021 is easy. The old saying used to be: “Don’t fight the Fed.”
But this Fed isn’t looking to pick a fight! In fact, Jay Powell must be the most docile Fed chief we’ve ever seen. Which means we should simply:
“Buy what the Fed is fueling.”
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."