Inflation isn’t dying a quiet death…
On Wednesday, the Labor Department released the latest figures for the Consumer Price Index.
It’s the government’s main inflation gauge. And it rose 3.7% in the 12 months ended in August.
That’s half a percentage point higher than the reading for July. And it’s nearly double the Fed’s target rate of 2%.
But the real story isn’t the headline inflation number…
It’s rising energy prices.
Last month alone, the average price for a gallon of gas shot up 10.6%. And the average power bill spiked 5.6%.
But while rising energy prices will sap your spending power, as an investor you can harness this trend to set up an inflation-beating stream of income for your portfolio.
That’s thanks to massive growth trend underway in one niche of the energy market.
That niche market is for liquified natural gas…
Also known as LNG, it’s natural gas that you cool to -260° F and condense into a liquid.
This shrinks the volume of natural gas by about 600 times. And it makes it easier to store and transport.
It’s still a fairly new technology. LNG was first exported in February 2016.
That year, the U.S. exported 1 billion cubic feet of natural gas a day.
That’s enough to generate a day’s worth of electricity for about 10 million homes.
And last year, LNG exports hit 11 billion cubic feet per day.
Thank Russia for that…
After it invaded Ukraine in February 2022, the European Union launched economic sanctions aimed at taking down the Russian economy.
Russia hit back by shutting off the spigots on its natural gas exports to the Europe – literally.
A report the U.S. Energy Information Administration (“EIA”) cites shows that Russia’s natural gas exports by pipeline to the EU and Britain plunged by almost 40% during the first seven months of 2022 compared with the same period in 2021.
That left it exporting, on average, just half of the natural gas it had exported over the last five years.
This forced European countries to wean themselves off Russian supplies – fast.
And the way to do that was to import LNG from America.
EIA figures show that 64% of total American LNG exports went to Europe in 2022. That’s a 65% jump from 2021.
And by 2030, the EIA says American LNG exports to Europe are expected to rise another 67%.
Europe is not the only destination for American LNG…
China’s LNG needs are expected to increase 80% by 2030.
India is also looking to power its growing economy with natural gas. It expects demand for the fuel to nearly quadruple by 2030. Much of that will come from importing LNG.
All told, the EIA projects that American LNG exports will rise by another 150% over the next decade.
And according to income investing expert and friend of Legacy Brad Thomas, it’s an opportunity to set up an inflation-beating stream of stock market income.
To grab a slice of this growing market, he’s recommending his readers invest in natural gas pipeline stocks.
Pipeline companies are an essential part of the LNG export process.
They ship natural gas from where it’s extracted from the ground and move it to where it’s processed. That’s usually at a facility near a port.
This is cheaper – and safer – than liquifying the gas where it’s extracted and shipping it in on trains or trucks.
That’s why Brad likes them so much. They collect steady revenues with relatively low operating costs.
That makes pipeline companies great “tollbooth” businesses…
Tollbooth businesses operate in industries with high barriers to entry.
This cuts down on competition. And customers must pass through the “tollbooth” to access a critical service.
Most pipeline companies are structured as master limited partnerships (“MLPs”).
To invest in them, you usually have to file a separate tax form each year. Wealthier investors don’t mind. But it can add more hassle and delays to your tax return.
That’s why Brad recommends the Alerian MLP ETF (AMLP). It owns the largest pipeline companies in America. And it allows you invest in them without owning individual MLPs and filing special tax returns.
Even better, it carries a yield of 8.6%. After jumping over the inflation “hurdle” of 3.7%, that leaves you with annual gains of 4.9%.
And that’s from income payments alone.
Over to Brad…
With more than 73% of its portfolio concentrated on pipeline transportation companies, this ETF is an excellent way to get exposure to natural gas pipeline MLPs.
And unlike explorers and drillers, whose profits depend on oil and gas prices, these companies get a steady fee for every cubic foot of gas they transport. They have long-term contracts with producers. This makes the profits at pipeline MLPs extremely dependable.
And these reliable profits… plus the fact that they’re structured to deliver most of their cashflows back to investors… allow them to pay out reliable income to shareholders.
With LNG demand soaring, pipelines should see more volume move through their tollbooths. This translates to even higher income for shareholders.
And if the income rises on an investment, the share price tends to rise too.
It’s the perfect recipe for fighting today’s energy-driven inflation. And it will hold up amid falling energy prices, too.
In April 2020, oil prices briefly dipped to negative $38 per barrel. It was shortly after the Covid-19 pandemic lockdowns took effect. So few people were commuting to work, taking trips, or booking flights that demand for oil fell off a cliff.
And this forced producers to pay people to take their oil because there was too much of the stuff to store.
But oil pipeline MLPs were still charging fees to transport and store oil and gas.
Enterprise Product Partners (EPD) is one of the largest oil and gas MLPs in North America. It saw only an 8% drop in its cash flows in 2020 while major oil companies like Exxon and Chevron were hemorrhaging losses.
So, consider adding shares of Alerian MLP ETF (AMLP) and picking up that inflation-beating income. You can do it through your regular brokerage account.
Regards,
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Chris Lowe
Editor, The Daily Cut