On March 10th, I increased my position of ETP. "But why?", you might ask. "ETP is in a downtrend. Their recent earnings report showed a decrease. Oil and gas, the commodity it transports, has been in a downtrend for months before that."
All those points are valid. And if I were a day trader, buying it now would be the dumbest possible move. However, I am not a day trader. I am a dividend investor. An opinionated one, at that.
The immediate outlook on ETP is that it will go down as long as oil prices are at lows that have not been seen for years and the entire energy sector bears that burden. The big picture, is that the energy sector is still among the most lucrative sectors in the long run. However, the reasons for oil prices being at lows that haven't been seen in years are both marvelous and frustrating.
First, we have the booming success of shale oil projects, of which ETP benefited from but is not reliant on. This wouldn't be so bad if it were not accompanied by a fuel consumption decrease. Because of the 2008 financial crisis driving the purchase and development of more fuel efficient vehicles, reserves have been utilized at a net positive rate. In fact, they are almost filled to capacity. Bind that to congressionally imposed fuel efficiency standards to be reached by 2025 and the reserves will overflow much sooner.
Second, we have OPEC not being able to agree on how much to decrease oil production by in order to prop up the price of oil to the benefit of some of its benefactors like Venezuela, Iran, and Russia. And because of sanctions being imposed on Russia and Iran, the USA has no desire to cut production, either. In fact, some members of OPEC are betting on this stance on sanctions to cause the weaker USA shale oil projects to have to shut down because they need oil prices north of $50 to be profitable. But with price just north of $40, they are taking a loss.
The question is who will give in first? OPEC for its benefactors, USA for the shale oil projects, or the shale oil projects. Eventually someone will give in. And whenever that happens, energy stocks will go up again. That eventuality is what I'm positioning for.
As a result of life changes in the previous two years, my position in ETP was extraordinarily low. The losses I take in the mean time will hurt, but not nearly as much if my position was at my target quantity already. Thankfully, I am far from there.
For my dividend income strategy, I require significantly more shares than I have now. And I am not just buying ETP at any price. I setting my orders at previous supports in the stock, or there about. If and when the energy sector rebounds, I will already have a start, plus the dividend payout will help to compensate me and soften the losses.
The process is essentially dollar cost averaging down the value of my position. As the price drops, I am able to buy larger share positions. The higher the number of shares at a lower price I am able to accumulate, the softer the losses become. In addition, the larger my position becomes the better the dividend payout becomes, generation an income to buy even more shares of ETP or another stock in my portfolio. And that works in favor of my dividend income strategy.
That's my opinion. What's yours? Disclaimer: See bottom of page. http://investorsopinion.blogspot.com
ETP - Energy Transfer Partners LP
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