Bonds & Interest Rates

These “Pick & Shovel” Investments Pay Reliable Double-Digit Dividend Yields

These stable businesses offer some of the most reliable dividends on the market today.

When gold was first discovered at Sutter’s Mill in the foothills of California’s Sierra Nevada mountains in 1848, thousands of people dropped everything and headed west with dreams of striking it rich. 

Within a year, San Francisco was transformed from a sleepy outpost with a few dozen shacks into a bustling mining hub. As gold fever spread, would-be prospectors poured in by the boatload from as far away as Chile and Hawaii. 

There was plenty of gold to be had in rivers and streams, particularly in the early days. But much of it went to larger operations that utilized high-volume hydraulic recovery techniques. The average miner sifting with a simple pan or other crude device was lucky to break even and recoup expenses. Thousands went home disillusioned and broke. 

However, while the great gold rush was a bust for many, the huge population influx was a boon for gaming houses, saloons and brothels. And several entrepreneurs made a fortune, among them a peddler of denim pants named Levi Strauss. 

In fact, the first millionaire to emerge from all of this was an enterprising retailer named Sam Brannan. Brannan famously cornered the market and bought nearly all of the available supplies of picks, shovels and pans. Then to drum up business, he ran through the streets showing everyone the newfound gold dust. 

Brannan was clever. He knew that some would find gold and others wouldn’t — but they would all need tools. And he was happy to supply them, at a substantial mark-up, of course. At the peak, Brannan was reportedly raking in $5,000 a day in sales, more than $140,000 in today’s dollars.

What does any of this have to do with income investing? Plenty…

As the Chief Strategist behind StreetAuthority’s Energy & Income advisory, I think the easiest way to explain this is using the energy field as an example.

From small independent explorers to integrated global giants, companies that find and produce oil and gas can make a ton of money for their shareholders. 

And many of these companies pay out steady dividends. For example, ExxonMobil (NYSE: XOM) has raised dividends nearly 6% annually for the past three decades.

But these companies are also exposed to fluctuating commodity markets. And as we all know, energy prices can be notoriously volatile. 

For example, Exxon shares are still well below their highs from before the recession on the heels of lower energy prices.

By contrast, companies that provide necessary equipment and services to these exploration companies aren’t in the business of selling oil and gas. So they don’t directly feel those day-to-day price swings. As long as prices are strong enough to support continued exploration and development activity, they stay happy.

It’s the same situation that the “pick and shovel” companies during the Gold Rush were able to use to their advantage. 

In the income and energy field, there are a number of these types of companies… and many pay high yields.

Perhaps the best known group is master limited partnerships (MLPs). These aren’t your traditional equipment and service companies that make pumps or drill bits… but they are every bit as important.

Without MLPs, the energy pumped out of the ground by energy companies would be useless. That’s because these companies own the pipeline and storage assets — so called “midstream” assets — that help get energy from the field to the end user.

03-12-Alerian

MLPs typically aren’t concerned with energy prices. They get paid for the volume shipped through their pipelines and storage terminals. They usually earn the same amount whether a barrel of oil is $150 or $50.

Of course, when you make money from simply transporting commodities (which are in constant demand) and don’t have to worry about swings in their prices, you’d expect to see steady cash flow. This is the case with many MLPs, which pass along the bulk of that money to their investors in the form of steady yields. Most MLPs have yields averaging 5-6%, and it’s not uncommon for some MLPs yield in the double-digits. 

But this same principal can be applied across the entire income universe. There are plenty of yields that come from companies doing the “exploring” — whether it be actual exploration for energy, delivering the next breakthrough drug, or building a new airplane.

If you want to invest in the most stable businesses, however, look to the companies that will make money supplying the “picks, shovels and pans”… even if other companies don’t strike gold.

[Note: For more about the income opportunities in the energy field, don’t miss my recent presentation about energy royalty trusts. This field is small — only about two dozen trade on the market. But we’ve found one trust yielding up to 17.1%. For more information — including names and ticker symbols — visit this link.]

Good investing!

Nathan Slaughter
Chief Investment Strategist, Energy & Income

Disclosure:  Neither Nathan Slaughter not StreetAuthority own shares of the securities mentioned. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” model portfolio. Members of our staff are restricted from buying or selling any securities for two weeks after being featured in our advisories or on our website, as monitored by our compliance officer.


What’s hot, what’s not and loving volatility: Top Analyst Mickey Fulp sounds off at PDAC

 Bullish Uranium ‘We’re using something like 20 to 30% more uranium than we mine and we’re running out of sovereign and utility stockpiles”, Graphite Copper & Gold & Volatility.

 Mickey Fulp, who topped the site’s list of recommended mining bloggers and newsletter writers. In this brief interview on the sidelines of the PDAC convention in Toronto, Fulp touches on gold stocks, current market volatility, and two metals he likes best right now: uranium and graphite.

Andrew Topf: I heard a lot of commentators saying at PDAC that the rally we experienced in January is looking more like a deadcat bounce. Where are we in the markets right now?
Mickey Fulp: It does look like that, but if you look at the venture exchange index it’s up 14% on the year and 2% in February, so we’ve seen a flattening of the market. A lot of that I think has to do with the price of gold, it was down $12 over the course of February. Gold really drives our market, and we were really having a good performance in gold till Bernanke did his little thing and the massive selloff came last week and the price of gold dropped $80 in one day. But anybody that’s unhappy with $1700 an ounce gold shouldn’t be in the gold mining business. There’s plenty of room for margins at $1700 gold.

Andrew Topf: You said recently that investors shouldn’t be afraid of the current volatility. So how should investors play mining stocks right now?
Mickey Fulp: In 2011 it was very common for gold to be up or down $50 in a day, same with the New York Stock Exchange, the Dow to be up 100 points or down 100 points, so that sort of volatility is often driven by fear and panic and greed. Daytraders and professional investors welcome volatility, the lay investor is the one who is intimidated by it, but from my point of view volatility gives multiple exit or entry points in a stock, so my new mantra is embrace volatility. Take emotion out of your trading and embrace the volatility and use it to your advantage.

Andrew Topf: Gold mining stocks are still lagging the price of bullion. Why is that the case and what is it going to take for the disparity to narrow?
Mickey Fulp: What’s really changed in the market is the ETFs. The Gold ETF (GLD) is now the third largest gold holder on the planet. At 2400 tons of gold, that’s a lot of gold. That’s not much less than the yearly supply of mined gold (2800 tons). What that has done for a lot of people is offered a new way to invest in the gold market. Before you either owned physical gold or you played gold stocks. Now you can hold physical gold, you can play gold stocks or you can own the ETF, so I think it’s sucked a lot of money away from the gold stocks and decreased liquidity, decreased volume and decreased prices.

Andrew Topf: You mentioned in your presentation that you like open pittable operations and insitu uranium and copper oxide projects. On the latter, is it simply the lower-cost of these operations that attract you?
Mickey Fulp: They’re environmentally benign, and they’re the lowest cost operations around. All you’re moving around is mineral-laden water and you’re actually cleaning up aquifers so they’re easier to permit, they’re quicker into production. It’s a wellfield not a hole in the ground.

Andrew Topf: How are you feeling about uranium these days?
Mickey Fulp: I remain a uranium bull and it all comes down to uranium fundamentals.We’re using something like 20 to 30% more uranium than we mine and we’re running out of sovereign and utility stockpiles, and the Russians are going to quit converting nuclear bombs to fuel, so there’s a pending shortage of uranium. What Fukushima did is it created supply disruption more than deamdd destruction so if anything the supply is going to decrease.

Uranium-Idealized-Chart-Entry

The Germans took 8 reactors off and now 2 of them are back on. The Japanese have only 2 of 54 reactors currently producing electricity. A lot of that was because of scheduled maintenance and also stress tests and some safety upgrades. There are brownouts in Tokyo and how long can that go on? That whole northeast coast of Japan lost all its industrial capacity so there has been demand destruction but that will come back. I think they’re locked into nuclear power and so my prediction is by the end of the year a significant number of reactors will be back online.

Andrew Topf: What metals are you bullish on right now?
Mickey Fulp: Copper, gold and uranium, and I’ll put graphite into that too.
Andrew Topf: Right, graphite seems to be the belle of the ball right now.
Mickey Fulp: It is, it’s the next big thing it reminds me very much what happened with REEs in 2009. We’re building a bubble in graphite, every snake oil salesman, shark and charlatan is swimming aorund in Coal Harbor in Vanouver right now. Every Vancouver promoter is scurrying around trying to find a shell to throw a graphite project in, so it looks very much like the next big thing. Like other area and commodity plays the juniors will rush in and 95% of them will fail and the ones with good deposits and good business plans will succeed.

Andrew Topf: Do you see any issues with mining and processing graphite?
Mickey Fulp: Well, it doesn’t have any of the processing confusion that happens with the rare earths sector, it’s at all-time high prices right now, and we have a shortage of graphite particularly large flake graphite which is needed in certain applications. The Chinese who supply 70% of the world’s graphite are running out of large flake graphite so the world needs more graphite and the mining and marketing and processing are very straightforward compared to the REE sector.

Andrew Topf: But you mentioned it’s a bubble.
Mickey Fulp: Yes it is a bubble. Let’s go back to the way this business works. 95% of these companies that are listed are doing nothing more than mining the stock market. Look at the Yukon gold play. That’s last year’s story isn’t it? Ultimately there will be successes coming out of the Yukon and we were sitting here last year hearing Yukon gold Yukon gold, and they had a horrible year. We want to wash a bunch of those pretenders out. That’s the way this market works. Anything where there’s a rush in, the good companies realize at first, get the best prospects, the best deposits, then the herd comes running in and becomes the next big thing and everybody has to have an REE project or graphite project or gold play in the Yukon. They rush in and then in a year or two they rush out because they’ve been unsuccessful and then they’re on to the next big thing. The key is to get the contenders. Go in early and find the contenders.

Andrew Topf: Think there will ever be a gold mine built in the Yukon?
Mickey Fulp: Oh sure there will be one or two gold mines built out of this, but it’s a harsh place and there’s little infrastructure, so we’re looking probably 10 years down the road.

Andrew Topf

Andrew Topf

Email: atopf@mining.com“>atopf@mining.com

Andrew Topf on   Google+

Andrew Topf is an editor at MINING.com. With a background in newspaper and trade magazine reporting, Andrew specializes in writing about mining and commodities. He has written for the Black Press newspaper chain in British Columbia, Business in Vancouver, and Baum Publications.

An Update on Seasonality of Gold Equities

 

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The PDAC Curse continues! Canadian gold equities have a history of moving higher from the last week in December until the third week in February in anticipation of encouraging news to be released just before or during the annual Prospectors and Developers Association Conference in Toronto early in March. Thereafter, Canadian gold equities tend to move lower. They followed their seasonal pattern once again this year. The TSX Gold Index from its low on December 29th to its high on February 23rd gained 13.4%. Subsequently, the Index plunged 13.4% by this Wednesday to reach a 20 month low. Moreover, next major support for the Index on the charts is 14% below current levels.

Weakness in gold equities this week is related to a $US68 per ounce plunge in the price of gold from last Friday to this Wednesday. On Wednesday, gold fell below its 200 day moving average at $1,679, a technical level that previously had provide strong support. Gold was responding partially to strength in the U.S. Dollar following news that U.S. Non-farm Payrolls in February continued to recover from depressed levels. The U.S. Dollar also strengthened following encouraging news from the Federal Reserve on Tuesday confirming slow, but steady economic growth in 2012. The Federal Reserve also noted its intention to maintain an easy money policy until the end of 2014.

The TSX Gold Index did not respond well to the news. Weakness in the Gold Index was the main reason why the TSX Composite Index dropped sharply on Wednesday when major U.S. equities indices were reaching multi-year highs. Moreover, prospects for gold and gold stocks are not encouraging between now and November 6th, the day when the next U.S president is elected. The U.S. Dollar has a history of moving higher between the end of March and the end of October during a U.S. Presidential election year. Not surprising, gold and gold stocks have a history of moving slightly lower during this period. Normally, gold and Canadian gold stocks have a period of seasonal strength from the end of July to the end of September followed by a second period of strength from the beginning of November to the third week in February. The latter period is likely to be the better period for re-entering the gold trade this year.

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Preferred strategy is to look for better opportunities than gold and gold equities between now and November. Silver, platinum and their related equities are preferred over gold if your investment focus is on precious metals. Silver and platinum benefit from a growing demand for industrial purposes and have a history of outperforming gold between now and May..

The Gold Bugs Index fell another 33.44 points (6.56%) last week. It broke support at 477.93 to confirm an intermediate downtrend. Strength relative to gold remains negative.

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Updated Post Today’s Close – Gold & Gold Stocks & New Article

After Mar. 20 Close:

TSE Gold Index Seasonality:

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Via Don & Jon Vialoux’s Equity Clock

Good As Gold!

Just as a matter of reference on January 1, 2010 the Dow was at 10,550 so to date it has risen 25.42% while gold has moved from 1,100.00 for a gain 50.54%! So in spite of the Fed’s best efforts to pump the stock market up with a barrage of fiat currency while at the same time suppressing the price of gold with relentless intervention, gold has out performed the Dow two to one!! That tells you all you need to know.

They say a picture is worth a thousand words so if that’s true

goldagain

…..read the rest & view more charts HERE

(also don’t miss Mark Leibovits daily gold comment HERE


A Big Relative Decline

Since April of 2011, gold stocks have entered a notable downtrend relative to the prices of gold and silver. Various theories have been advanced as to why this is the case and all of them have some merit (e.g. the fact that ‘resource nationalism’ is increasing all over the world, that costs are ratcheting higher, that metal-backed ETFs give investors exposure to the metals while avoiding the hassles gold mining companies have to deal with, and so forth).

Screen shot 2012-03-20 at 7.25.44 AM

…..read and view more charts HERE

Gold & Silver: Timing and Targets From One of the Best

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GOLD – ACTION ALERT – BUY

Continue to look to take delivery of the physical metals on further weakness. The gold/silver snake is coiling. The ‘gangsters’ at the Plunge Protection Team, JP Morgan Chase, and the CME will do their best to drive prices lower, but will get ‘bit’ by a venomous and revengeful market. There will be no tears here.

Gold and silver were recently knocked down to distract from the Greek bond default and that there is a huge movement away from the U.S. dollar as a trade settlement currency. The United States is waging economic nuclear war against Iran and threatening to do the same against India and is likely to suffer similar counterattack against its own vulnerabilities, and a lot more.

We may have hit support levels in both gold and silver, but I am awaiting further confirmation that lows are in place. Such lows may only be trading lows. Recall, we’ve entered a negative ‘seasonal’ time of year for gold and silver that could carry into the summer. There is, however, the possibility of another shot higher into May, but I would hope upside volume would confirm the advent of that move. Except for those of us who are long-term holders or for those who have no positions whatsoever, there is nothing to do here without a renewed upside trigger.

I urge you to subscribe to my VR Gold Letter for much greater detail at www.vrgoldletter.com. Call our office, we can offer you a discount for subscribing to more than one service.

For now, I am as psychologically prepared to see silver at 20 as to see it at 60 in the next twelve months. The big numbers for silver are 26 support and 37.60 resistance. The big numbers for gold are 1521 support and 1792 resistance – above which we could see 2500. As Ed Hart used to say on the old Financial News Network in the 1980s, ‘we will know in the fullness of time’.

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