Raymond James' Top Picks for 2022 - Jan 3

[dan_s]

"We currently have 12 Strong Buy rated companies within our coverage — nine of which are traditional E&Ps, and three mineral names. Among the large-caps, ConocoPhillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), and Pioneer Natural Resources (PXD) all offer attractive shareholder return options between dividends and share buybacks as well as strong operational performance. Occidental Petroleum (OXY) is continuing to work away its leverage and should be in a position to start returning capital by 2H22. The SMID-caps, Antero Resources (AR), APA Corp. (APA), Marathon Oil (MRO), and Northern Oil & Gas (NOG), make the list for various reasons. APA has considerable upside potential, and given its position in Suriname we believe it could easily see its valuation double given good results in the area (see Hess at ~8x EBITDA vs. APA at ~4x). In Appalachia, Antero sports the basin’s lightest hedge book and enters 2022 with no liquids hedges (~29% of total production). Northern and Marathon are both on the shareholder returns train, with Northern establishing a strong cadence of increasing its base dividend, while Marathon is executing share buyback equivalent to 50% of free cash flow. On the minerals front, Kimbell Royalty Partners (KRP) offers investors an astounding ~13% dividend yield while possessing just a ~12% annual decline rate, the best among all public mineral names. In similar fashion, Black Stone Minerals (BSM) and Brigham Minerals (MNRL) both sport 2022E dividend yields in excess of 11%, with BSM valued at just 6.9x 2022E P/DCF. And don’t forget — dividends from all three of these mineral names are tax-free!" - Raymond James 1-3-2022

[sl6886]

Dan,

Can you explain this? Tax free?

Black Stone Minerals (BSM) and Brigham Minerals (MNRL) both sport 2022E dividend yields in excess of 11%, with BSM valued at just 6.9x 2022E P/DCF. And don’t forget — dividends from all three of these mineral names are tax-free!" - Raymond James 1-3-2022

Also, can you advise which high yield recommendations are NOT suitable for IRA's.

Thanks
Scott O.

[dan_s]

BSM is an MLP so some of its quarterly cash distributions are "return of capital", so not currently taxable. BSM should be held in your taxable trading account.

MNRL is a C-Corp. so it pays regular dividends. Their dividends (reported on form 1099) could be classified as return of capital if the company has no taxable income in 2022 and accumulated negative taxable earnings. FLMN and VNOM are also taxed as C-Corps.

See page 10 of the newsletter. IMO the Master Limited Partners ("MLPs") are not suitable for an IRA because of the special reporting requirements and you just should not put a tax shelter in a tax shelter. To be clear, you can hold MLPs in an IRA, I just don't recommend it.