Linn Energy LLC (NASDAQ: LINE) is a Master Limited Partnership, with all the tax issues that brings. To avoid the complex tax situation the company uses Linn Co. Dividends are passed to Linn Co and taxes are paid at that level, then distributed to shareholders with the standard 1099-DIV, simplifying things a bit. Linn Co does have a lower yield of 7.3%, and trades separately from Linn Energy with the potential for a premium or a discount. Consult a tax professional for more information.
Splitting the difference with the titan
“Natural gas or oil?” is not an easily answered question. Rather than debate the question, use the certainty of the current oil-based economy and go with Exxon Mobil Corporation (NYSE:XOM), which is huge all around. It provides the safety of being massive, but perhaps its exposure to natural gas can be enough to move its stock.
The three-year return on the stock is 30%, which means moving shares is a Sisyphean task. The PE has been steadily falling as the company increases revenue and earnings. Only recently hastop line growth stalled.
With its massive role in providing both oil and natural gas, I do not see Exxon Mobil Corporation (NYSE:XOM) keeping its 9-and-change PE ratio. It normally hovered at around 15, and it should get back there when the market realizes and appreciates the opportunity. In the meantime the company has a 2.5% dividend yield to reward patient investors. While that is not great, Exxon Mobil Corporation (NYSE:XOM) can be considered undervalued if natural gas prices continue rising along with oil.
Conclusion
Oil is likely to remain important for the next year or two, but over the next two-to-three years an increasing amount of natural gas production facilities will be activated. Expect things like refueling stations, CNG factories, LNG factories, and a whole slew of potential political initiatives for clean natural gas or local energy sources. Chesapeake Energy Corporation (NYSE:CHK) and Linn can benefit from increased diversity from oil, but Exxon Mobil Corporation (NYSE:XOM) is the leader in both oil and natural gas.
Exxon’s stability comes at the price of potential returns. Chesapeake Energy Corporation (NYSE:CHK) has been beaten down and could see capital appreciation, while Linn still has a very high yield. The decision comes down to the role the stock will play in your portfolio and your specific investing style.
Nihar Patel has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy.
