A recent sell off of energy stocks provided excellent opportunity to add a few good dividend stocks to investors’ portfolios for great prices which may not repeat again. Well, I wouldn’t say that they wouldn’t repeat again as the opportunity of purchasing Legacy Reserves for this great price actually repeated again.
I had a few candidates to buy and couldn’t make a decision but then I decided to go with Legacy Reserves (LGCY) Company. I purchased this stock some time ago in my TD account and now I am adding this stock into my ROTH IRA account too. When I was buying this stock a year ago the stock was trading at $27.10 a share and offered a nice yield of 8.55% at 12.10% growth.
Today, the stock is selling for $12.50 a share and the yield skyrocketed to 17.80%. And it is all because of oil and natural gas sell off we saw recently. There are some concerns about the ability of the company to sustain its operations and mainly its distribution level if the prices of oil stay this low for longer period of time.
I don’t believe energy cost will stay this low for a long time. It has never stayed that low in history. In 2008 oil prices fell from 140 per barrel to below 40 a barrel. The fall took almost the whole 2008 year time period, but in 2009 we saw a recovery to 110 a barrel. During that period of time Legacy was able to sustain its dividend policy (unlike some others).
Today, we are approaching those same levels as in 2008. Oil is close to $50 a barrel, but if you take a look at RSI, we are in an oversold territory, deeper than the one in 1986. Will this mean that we are seeing a bottom? Maybe, maybe not. Nobody knows. But I would say we may see a recovery. It may be a slow one, but recovery.
The reason why I see this as a chance for recovery is the magnitude of the oil price fall. When the decline was more like sequential, step by step, then the recovery was slow too. Whenever the oil fell like a rock, the recovery was faster. I hope that this pattern will repeat.
Even if not and a recovery will be slow and painful, I believe that LGCY management will be able to react to it and adjust their portfolio and hedging accordingly.
The stock of LGCY fell down hard along with oil prices and it was selling a bit over $10 a share. I wanted to buy at that point, but I didn’t have cash available.
I use a strategy of saving free cash in a commission free ETF (in this case I use RWX fund). Every penny I save, every dividend I receive, I save in RWX by buying even one share of this fund. It is free with no commission. After I save $1200 I then sell shares of RWX worth of $1000 and use that money to buy a dividend paying stock. While saving and waiting for my minimum amount for a new purchase, I collect dividends from RWX.
There is however a limitation with this commission free ETF. You must hold for 30 days before you can sell shares. If you sell before, you will be charged a penalty and commissions.
Today, I cleared this limit and was able to sell shares of RWX to release cash to buy LGCY stock.
If Legacy will do what it did in 2009 then I should see a great capital gain and collecting nice dividend in the meantime.
|Total shares holding after the purchase:||81|
|Estimated annual dividend:||$197.64|
|Consecutive Dividend Increase:||3 years|
|Dividend yield today:||17.80%|
|Dividend 5yr Growth:||2.96%|
|Dividend paid since:||2007|
I was thinking purchasing CVX, but later decided to go with LGCY. What do you think, was is better to buy CVX instead or is LGCY a good purchase?
Happy Trading & Investing!
|All Dividend Investing, Options Trading, Personal Finance|