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To Drill or Refine? Good Ways to Collect Big Dividends – Seadrill Ltd (SDRL), Calumet Specialty Products Partners, L.P (CLMT), Linn Energy LLC (LINE)

The boom in US energy production creates an income opportunity for retirees and those smart enough to plan ahead for retirement.  With Social Security projecting benefit cuts and facing insolvency in 2033, Americans need to take care of their retirement income themselves.  Below are three energy companies that can help Americans achieve a measure of financial independence.

Did you catch them in the movie “Safe Haven?”

Even if you didn’t catch one of their logos in the recent Hollywood tearjerker, you’ll find Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) products in Armour All, Turtle Wax, WD-40 and Kingsford brands. You’ll even find Calumet Specialty Products Partners, L.P (NASDAQ:CLMT)  in duct tape. But the big story for Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) rests in its fuel products.

For fiscal 2012, Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) reported significant increases in its earnings, led by a 59% increase in its fuel products division. Gasoline and diesel were the biggest contributors. This growth came from both acquisitions and organic growth.

Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) pays a 7.1% distribution. Its payout growth was flat from 2008 to 2010, but since then, its distribution has increased from $1.84 to $2.30 per share.  Will this growth keep going?  I think so.

Calumet Specialty Products Partners, L.P (NASDAQ:CLMT) recently announced a joint venture to build a diesel refinery in southwest North Dakota using cheap Bakken shale oil. Calumet also plans on expanding its Karns City, Penn. refinery to incorporate a natural gas-to-liquid plant. This plant will use cheap Marcellus shale gas and Fischer Tropsch technology to make 1,000 barrels per day. Beyond oil refining, Calumet may ship oil by barge from its Lake Superior loading dock to take advantage of the takeaway problems Bakken oil suffers.

On the downside, environmental concerns may scuttle the oil barge plans.  Currently, Calumet also owes much of its profits to a significant price differential between crude oil and Calumet’s products. If crude oil prices rise, profit margins will likely narrow.

Hedging its future and your income

Linn Energy LLC (NASDAQ:LINE) recently received unfavorable press. In the Feb. 13 edition of Barron’s, Andrew Bary raised questions about how Linn accounted for its hedging activities. This is no small matter, since hedging oil and gas production is key to its financial performance. But Linn has since publicly explained its hedging activities and refuted Mr. Bary’s claims. Linn also reported excellent earnings for Q4 2012.

Three major developments over the year should excite Linn investors. First was the creation of LinnCo LLC (NASDAQ:LNCO). This publicly traded corporation was created to invest in a Linn Energy LLC (NASDAQ:LINE) master limited partnership, and disperse Linn distributions to shareholders.  This allows certain institutional investors to invest in Linn Energy LLC (NASDAQ:LINE) who otherwise could not invest in a master limited partnership.

Second, LinnCo and Linn Energy LLC (NASDAQ:LINE) teamed up and bought Berry Petroleum in an innovative deal. Describes as an accretive acquisition, this merger should use Berry’s assets to increase distributions, while allowing a more conservative payout rate.

Lastly, Linn has a winner with its Hogshooter Wash play; initial exploration yielded results so encouraging, the company plans to focus heavily on oil production there during 2013.  So by acquisition and organic growth, Linn’s current dividend yield of 7.7% looks safe.