Petroleum and Resources Closed End Fund - Playing for an Energy Price Rebound
This fund [NYSE:PEO] is one of the oldest in America having started operations in January 1929. They specialize in natural resource, basic materials and energy related shares with an emphasis on dividend paying issues. With oil prices having fallen substantially and abruptly over the past couple of months this looks like a good time to get involved in this old-line fund.
Here is the list of their top 10 holdings as of March 31, 2010:
Ten Largest Equity Portfolio Holdings (3/31/10)
|
|
Market Value |
% of Net Assets |
|
Chevron Corp. |
$71,280,200 |
10.8 |
|
Exxon Mobil Corp. |
68,319,600 |
10.3 |
|
Occidental Petroleum Corp. |
37,197,600 |
5.6 |
|
Noble Corp. |
26,764,800 |
4.1 |
|
Transocean Ltd. |
26,600,980 |
4.0 |
|
Halliburton Co. |
21,091,000 |
3.2 |
|
Apache Corp. |
20,300,000 |
3.1 |
|
XTO Energy Inc. |
20,122,270 |
3.0 |
|
Freeport-McMoRan Copper & Gold Inc. |
19,631,900 |
3.0 |
|
Noble Energy, Inc. |
18,980,000 |
2.9 |
|
Total |
$330,288,350 |
50.0% |
After the June 4, 2010 332 point drop on the DJIA their net asset value {NAV} was $23.54 and their closing share price was $20.79 allowing for purchase at a 11.7% discount to asset value. PEO always pays a substantial distribution. Here is the history of payments from dividends and capital gains over the 5-years 2005-2009…
Annual Rate of Distribution
|
|
Income Dividend per Share |
Short-Term Capital Gains per Share |
Long-Term Capital Gains per Share |
Total Distributions |
Dividend Yield* |
Annual Rate of Distribution** |
|
2005 |
$0.56 |
$0.16 |
$1.06 |
$1.78 |
1.9% |
5.9% |
|
2006 |
0.47 |
0.34 |
2.99 |
3.80 |
1.4% |
11.3% |
|
2007 |
0.49 |
0.04 |
3.78 |
4.31 |
1.3% |
11.6% |
|
2008 |
0.38 |
0.04 |
2.57 |
2.99 |
1.1% |
8.9% |
|
2009 |
0.37 |
0.14 |
0.89 |
1.40 |
1.7% |
6.6% |
|
|
|
|
|
Average: |
1.5% |
8.9% |
* The dividend yield is the total income dividends during the year divided by the average daily market price.
In today’s near-zero interest rate world that 8.9% average annual distribution rate alone make PEO shares attractive. If you also believe we’ll see higher oil, gas, mineral and coal prices and/or a weaker U.S dollar then you’ll also see big upside in the future NAV. Indeed, the March 31, 2010 NAV was $27.12 or 13.2% higher than yesterday’s closing NAV.
The last sharp sell-offs ended in July 2009 and February 2010 and each was followed by an equally swift and powerful rally for those who bought in cheap.
I love the prospects for oil price increases. I also think the present 11.7% discount to NAV leaves room for additional gains due to compression of the discount’s magnitude.
Petroleum and Resources shares are an excellent choice for conservative, income oriented investors at the present quote. You get instant diversification, a low expense ratio and a fine distribution rate.
Dr. Paul Price
June 5, 2010
Disclosure: Author is long PEO shares.
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