Guess what? You don’t have to invest in oil and gas for income yields

Written by Rebecca O'Connor on 19th November 2015

One of the main reasons oil and gas stocks have proven so popular over the years is not that everyone just loves extracting fossil fuels – it is the dividend.

Offering investors – particularly those who have amassed large savings and want to earn income from their pot – a regular, dependable, quarterly dividend payout has been manna to a certain type of mid-risk profile investor.

Those precious dividends now look under threat, as we reported in this article for Energydesk and as Merryn Somerset-Webb also warned in this MoneyWeek comment this week. Costs in the industry are high, as failed explorations take their toll on balance sheets. Jobs are going first; but unless prices stage a dramatic recovery, dividends will not be too far behind.

So far, the oil majors have been bluffing, in some cases slightly increasing the dividend, a confidence trick presumably designed to prevent what could otherwise be a problematic outflow.

Whether they can ride out troubled times with this strategy is debatable.

The good news is that as investors, people don’t have to wait to find out.

John Ditchfield, a responsible investment expert at Castlefield, the IFAs, put together a couple of tables for us that show if it is income yield you are after, then alternative energy can produce better results than a portfolio of oil dividends. MedicX builds primary care hospitals, the other two funds are alternative energy.

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So they are good for your conscience and your pocket – the average yield on this portfolio is 1 percentage point higher, at 6.1%, than the top 5 LSE oil stocks, with an average yield of 5.05%.

Although it is important to note the latter portfolio is a yield and not a dividend, and therefore technically less certain – they way these stocks generate returns – from tangible assets such as property and renewable energy assets, which receive predictable revenue streams, means it is a more dependable yield than in general.

Portfolio of the top five biggest LSE oil stocks:

Company Dividend
Royal Dutch Shell 7.38%
BP 6.97%
Gazprom 5.46%
OJSC Rosneft Oil 3.56%
BG Group 1.87%
Average 5.05%
*As at November 12 2015

 

Alternative energy portfolio:

Company Yield
Medicx Fund 6.87%
Foresight Solar 4.49%
Greencoat UK Wind 6.96%
Average 6.10%
*As at November 12 2015  
But even if you don’t want to choose a sustainable fund, the most popular income fund on the market now – Neil Woodford’s CF Equity Income Fund – is largely¬†carbon positive and rather ethical, although this is not a selling point it shouts about.¬†