Worried About High Heating Costs? Here’s What You Need to Do
November 19, 2018
These Stocks Yield Up to 11%
As the thermometer plummets, heating costs have started to surge.
An unexpected cold snap last week sent the price of natural gas soaring over 75% in frenzied trading. With a cold winter in the forecast, analysts foresee a big spike in the price of heating fuels.
At best, a higher heating cost is an annoyance. At worse, it can put a big strain on a household budget. Regardless, many Americans should prepare for a big shock when they open their utility bill after Christmas.
But we don’t have to idly sit by while energy companies pick our pockets. For those worried about higher fuel costs or who are just tired of paying the heating company so much money, I have a solution that could help offset this year’s increase. Or at least, it could help to offset some of what we pay to heat our homes.
“Heating Return Checks” From the Utility Company
Born and raised in the Northeast, I’m used to a cold winter. But over the past few years, the cost to heat my home has spiraled out of control. Needless to say, I’d like to keep that cash in my pocket.
The solution? A few years ago, I made a few small investments in a number of energy companies. So the more money I pay in heating costs, the more I receive in dividend income.
This year, those shares paid me a couple hundred dollars in dividends, which should offset a big chunk of my heating bill. On top of that, my initial investment has yielded thousands of dollars in capital gains.
Add it all up and I can almost heat my house for free.
Of course, you can replicate this strategy yourself. Adding even a small collection of heating companies to your portfolio can serve as a great hedge against rising fuel costs.
Cabot Oil & Gas Corporation (NYSE:COG) represents a good place to get started. The company controls some 251,000 acres, with operations focused in the Pennsylvania and Marcellus and South Texas Eagle Ford shale formations. As of December 2017, the company has 9.7-trillion cubic feet equivalent of proved reserves, of which 96% was natural gas.
Thanks to the recent spike in natural gas prices, shares have surged 13% in value of the past month. With profits now projected to soar on the back of higher home heating costs, I expect this company to announce a string of dividend hikes in the near future.
Another interesting business is propane distributor AmeriGas Partners, L.P. (NYSE:APU). Now that most of the nation’s homes stand within reach of a natural gas utility, propane demand grows at a sluggish pace. It’s still a good business, though, with AmeriGas charging a fixed markup on each gallon sold. So as the temperature dips, the company sees an almost automatic spike in profits.
And because AmeriGas prevents customers from switching to rivals once they have their tank installed, its margins can be quite thick. As a result, shares pay out out an annual yield of nearly 11%.
Finally, Southwest Gas Holdings Inc (NYSE:SWX) is an investor-owned utility serving over two million residential, commercial, and industrial customers. The company owns the pipes that pump natural gas into everyone’s homes across California, Nevada, and Arizona, earning a fee on each cubic foot burned. As people turn up the thermostat, fee-income starts to increase.
For shareholders, this reliable business has translated into robust dividends and capital gains. Over the past decade, Southwest Gas has delivered a total return, including distributions, of 270%. That crushed the performance from the broader S&P 500 over the same period.
The Bottom Line
Dividends aren’t just for retirees. If you invest with a specific goal in mind, such as offsetting higher heating costs, they can be a great way to offset higher expenses. And when you start cashing those dividend checks, it makes it easier to stomach those other utility bills after Christmas.
