Petroleum Profit Sharers
Web Editor, "Mad Money"
Crude prices are on the rebound, it seems. The trend makes sense given OPEC’s production cuts, the decline in drilling and North America’s reduced rig count, while at the same time U.S. gas demand is picking up. So it’s no wonder that a barrel of the good stuff has surged past $45.
How do investors take advantage? While Cramer likes oil stocks such as BP, Chevron and ConocoPhillips, he's also a fan of shareholder-friendly Permian Basin Royalty Trust . PBT is a master limited partnership, which avoids taxes by returning most of its profits to shareholders through a dividend. It’s great protection during this recession. But even more than that, these MLPs rise steadily with oil prices, but decline less when crude comes down. So the risk-reward scale slants in shareholders’ favor.
Now PBT did drop with oil – the stock’s at $8 after reaching a 52-week high of $27.80 – but Cramer’s expecting a comeback. When the price per barrel was $50 and headed lower, Permian Basin was trading at double its current price. That means PBT should fetch $11 now that oil’s back to $45. Owning this stock is like owning the SPDR Gold Shares ETF, which tracks the price of gold, except you get a great dividend. So think of it this way: If crude is up almost 34% from its 52-week low, then PBT should be up more than just $1 from its own 52-week low.
As for the yield, that will vary with oil prices, and to a lesser extend natural gas. Citigroup expects PBT to pay out $1.11 per share in 2009, though that estimate assumes oil will stay at about $44 for the rest of the year. If Citi’s right, then the PBT’s dividend yield is 13.8%. But even if the company keeps its dividend at the very low February level, the yield is still 6.5%, which ain’t too shabby either.
Here’s your disclaimer, though: This play works only at $8. Not at $9, $10 or higher. Keep that in mind if you decide to buy.
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