Matthew DiLallo


These stocks offer income-focused investors an enticing payout.

Yield-focused investors are facing dwindling options these days. With the Federal Reserve slashing interest rates, yields have compressed on most income investments. Meanwhile, with the stock market bouncing back sharply from its COVID-19 bottom, most dividend yields have fallen, pushing the average to less than 2%.

However, several attractive payouts still exist these days. Three income stocks that stand out right now for their above-average yields are Clearway Energy (NYSE:CWEN)(NYSE:CWEN.A), AvalonBay Communities (NYSE:AVB), and Brookfield Infrastructure (NYSE:BIP)(NYSE:BIPC). Those big yields are just part of their attraction, which is why they’re currently among my favorite income options.

High-powered dividend growth

Renewable energy producer Clearway Energy currently yields 3.6%. That payout is enticing for several reasons. For starters, it’s on a solid foundation. The company’s business model generates stable cash flow backed by long-term, fee-based contracts as it sells electricity to utilities. Meanwhile, the company only pays out about 54% of that money to support its high-yielding dividend.

That low payout ratio enables Clearway to retain cash to help finance expansion. The company already has its next three deals lined up, which should all close by early next year. These new additions will help grow its cash flow per share by 9%, giving it more room to increase its dividend. Meanwhile, it has a large slate of potential acquisition opportunities thanks to its relationships with a renewable project developer and private equity fund. Because of those factors, Clearway could deliver fast-paced dividend growth for the next several years, making it a great income stock to buy for the long haul.

In-demand real estate

Apartment owner AvalonBay Communities currently pays a 4.2%-yielding dividend. That payout is on solid ground despite all the turmoil in the real estate sector. That’s because the bulk of its residential tenants have continued to pay rent despite the upheaval in the economy. Overall, it has received 95% of the rent it billed in both April and May. While collections might face some additional pressure if the economy goes into a prolonged slump, the multifamily sector isn’t facing the same long-term headwinds as retail and office real estate.

The company further compliments its reasonably stable revenue stream with a rock-solid financial profile. The multifamily REIT boasts a conservative payout ratio of 65% of its cash flow and a solid investment-grade balance sheet backed by a sound leverage profile. That provides it with ample financial flexibility to invest in development projects and make acquisitions, which should enable it to keep growing its dividend.

A big yield with ample growth prospects

Infrastructure operator Brookfield Infrastructure currently offers the highest yield of this trio at 4.7%. That payout is also on solid ground since Brookfield’s diversified portfolio of utilities and energy, data, and transportation infrastructure generate steady cash flow, mainly backed by long-term, fee-based contracts or government-regulated rates. The company typically retains 35% of that cash for reinvestment, providing ample coverage of its high-yielding dividend. Meanwhile, it compliments that healthy profile with a strong investment-grade balance sheet.

The company’s financial flexibility provides it with the capital to invest in expansion projects and make acquisitions. Brookfield currently estimates that its organic growth drivers alone can support 5% to 9% annual dividend growth. That steadily rising income stream makes it a great option for dividend seeking investors.

Higher yields with lower risk profiles

Clearway, AvalonBay, and Brookfield Infrastructure all offer investors above-average yields. On top of that, they also boast rock-solid financial profiles and ample growth potential. Because of those factors, I’d have no problem adding to my position in any of these dividend stocks right now.

Author: Matthew DiLallo

Source: Fool: 3 High-Yield Dividend Stocks I’d Buy Right Now

DCP Midstream’s big-time yield is on shaky ground this year.

DCP Midstream (NYSE:DCP) recently reported its full-year results for 2019 as well as its outlook for 2020. At first glance, those numbers seem to suggest the master limited parnership’s 15.5%-yielding distribution is on a sustainable footing.

However, a deeper dive shows that the payout remains a risky bet. Here’s why dividend investors should steer clear of this payout for the time being.

Two risks to watch closely

DCP Midstream believes it can navigate through this year’s challenges while maintaining its big-time payout. However, the company needs to overcome two major hurdles so that it can finance expansion and keep distributing cash at its current level.

The first one is the outsize impact commodity price volatility has on its cash flow. DCP Midstream expects to get about 70% of its cash flow from stable fee-based contracts this year. While that’s an improvement from 65% last year, it’s well below the 80%-plus level of most MLPs. The company has hedging contracts in place to mute some of this impact, bringing the total percentage of its cash flow locked in by contracts to about 79% this year, which is a bit short of its 80%-plus goal. What makes this shortfall a concern is that the company budgeted for oil to average $60 a barrel this year. Instead, crude tumbled to around $50, which could cause cash flow to be at or below the low end of its guidance range.

The other worry with DCP Midstream is that it needs to sell assets to bridge the gap between cash flow and capital expenditures so that its leverage ratio doesn’t spike. Given all the volatility in the energy market, it might not get good values for the $100 million to $300 million in assets it aims to sell. Because of that, it might fall short of its goal or accept a lower value for its assets to bridge the gap.

Too risky right now

DCP Midstream needs to execute flawlessly this year to thread the needle of continuing to pay a high-yielding distribution while funding what remains of its expansion program amid challenging energy market conditions. If it can’t find buyers willing to pay a good value for the assets it aims to sell, and commodity prices keep falling, then it might need to reduce its payout so that its financial metrics don’t deteriorate.

However, if it achieves its asset sales target and commodity prices cooperate, then it won’t need to worry about reducing its distribution. That’s because it will be much easier to maintain the current payout level next year when capital spending will decline to a range that it can easily self-finance with retained cash and new debt while maintaining its leverage target.

Even though sustainability is only one year away, the payout seems a bit too risky for dividend investors in the near term.

Author: Matthew DiLallo

Source: Fool: Lots of Risks Remain at This 15.5%-Yielding Dividend Stock

These stocks offer investors big dividends backed by clean energy.

The global economy needs to invest trillions of dollars in the coming years to transition its power source from fossil fuels to renewables. There’s a tremendous amount of growth ahead for the sector, which could enrich investors who own stocks of companies focused on this transition.

Three that have the potential to produce compelling returns are Atlantica Yield (NASDAQ:AY), Clearway Energy (NYSE:CWEN), and Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI). Not only do they have solid growth prospects, but all three also pay high-yielding dividends. That makes them intriguing options for income-seekers to consider putting on their watchlist.

A sustainable income stream

Atlantica Yield focuses on operating sustainable infrastructure assets. These include not only wind and solar power generating facilities but also natural gas power plants, electricity transmission lines, and water desalination plants. The company sells the power it produces under long-term, fixed-rate power purchase agreements and has long-term fee-based contracts in place for the capacity of its water and transmission assets. Those agreements provide it with very predictable cash flow, the bulk of which it pays out to investors via a dividend that currently yields 5.8%.

The company expects to grow that payout by 8% to 10% per year through 2022. Powering that plan is its ability to invest in the acquisition and development of additional sustainable infrastructure assets. Atlantica Yield has a large pipeline of opportunities in front of it thanks to its strategic relationship with Algonquin Power & Utilities, as well as organic expansion opportunities embedded within its existing portfolio. Beyond that, the company notes that the global economy will need to invest $10 trillion on new renewable energy assets and another $11 trillion on power transmission and distribution infrastructure by 2050 so that wind and solar can provide half of the world’s power. Add to that the investment needed in water desalination, and Atlantica should have plenty of growth opportunities in the coming years, which should give it the power to keep increasing its high-yielding payout.

Getting back on track

Clearway Energy also owns a portfolio of wind, solar, and natural gas power-producing facilities. On top of that, it operates some district energy systems, which provide heating and cooling to several buildings from a central plant. The company sells the energy it produces as well as the warmed or chilled air to customers under long-term contracts, which provide it with a predictable cash flow stream. It uses a large portion of those funds to pay a dividend that currently yields 3.8%.

The company entered last year with the expectation that it would increase its payout by another 5% to 8%. However, it had to modify that plan after one of its largest customers, utility Pacific Gas & Electric, filed for bankruptcy protection. It ended up slashing its payout nearly 40% to conserve cash. That gave it the financial flexibility to continue acquiring clean energy assets. Those transactions have the company on track to grow its cash flow by more than 18% this year. That growth, along with an eventual resolution of the Pacific Gas & Electric bankruptcy, should enable Clearway to repower its dividend growth engine soon.

A different way to collect a renewable income stream

Hannon Armstrong Sustainable Infrastructure Capital is a unique way to invest in renewables. The company has structured itself as a real estate investment trust (REIT) instead of a traditional corporation. Further, rather than owning and operating assets like a wind farm, it provides capital to companies in the energy efficiency, renewable energy, and sustainable infrastructure markets. These investments, typically debt-like financing, generate predictable cash flow that it uses to pay its 3.9%-yielding dividend.

The company believes it can invest about $1 billion per year into a variety of sustainable initiatives. For example, it partnered with solar panel maker SunPower (NASDAQ:SPWR) to help finance its solar lease program. SunPower also formed a joint venture with Hannon Armstrong to acquire and deploy solar panels ahead of a decline in the federal tax credit for solar.

The REIT believes its investments in the sector will grow its earnings by 2% to 6% per year. That should give it the power to steadily grow its dividend.

Intriguing opportunities in the renewables space

The renewable energy sector is still in the early innings of its growth, so dividend-seekers could potentially collect income streams that expand for decades. Atlantica Yield, Clearway Energy, and Hannon Armstrong are among the companies that look like they could deliver years of steady dividend growth, which is why income-focused investors should consider adding them to their watchlist.

Author: Matthew DiLallo

Source: Fool: 3 High-Yielding Clean Energy Stocks to Put on Your Watchlist

These stocks offer well-supported high-yielding dividends with a bit of upside sprinkled in for good measure.

With interest rates falling this year, it’s gotten a bit tougher for yield-seeking investors to get an attractive payout. Many rate-sensitive investments — including lots of higher yielding dividend stocks — have risen in value as investors have piled in, which has pushed down their yields. Because of that, many income-seeking investors likely feel as if they need to take on a bit more risk to get a compelling payout.

However, there still are some stocks that offer compelling yields with a lower risk profile. Here are five great ones with payouts of at least 5% to consider buying.

ONEOK: Current yield 5%

ONEOK (NYSE:OKE) has been a great dividend stock over time. The pipeline giant has delivered dividend stability and growth for more than 25 years. While it hasn’t given its investors a raise each year, it typically goes long stretches where it boosts its payout every quarter. Its current streak stretches for the last eight quarters — and the company increased its dividend 9% in the past year alone.

This trend should continue through at least 2021. Four factors drive that outlook.

First, ONEOK generates stable income, as more than 80% of its earnings come from fee-based contracts. Second, it has a conservative dividend-coverage level of 1.42 times its cash flow.

Third, its leverage level was 4.5 times debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) at the end of the third quarter, which is comfortable for a pipeline stock. And finally, thanks to the upcoming completion of more than $6 billion of expansion projects, ONEOK’s earnings are on track to grow at an accelerated pace during the next two years.

These factors support the company’s ability to keep growing its high-yielding dividend.

Enterprise Products Partners: Current yield 6.3%

Enterprise Products Partners (NYSE:EPD) has treated its investors like royalty over the years. The MLP has increased its payout in each of the last 22 consecutive years, including for the past 61 straight quarters.

That trend should continue for the next several years. Driving that view is Enterprise’s top-tier financial profile and growth prospects. It currently boasts even better financial metrics than ONEOK and has $9.1 billion of expansion projects under construction that should come online through 2023. Because of that, Enterprise Products Partners should have plenty of fuel to continue giving its investors a raise each quarter.

Enbridge: Current yield 6.3%

Canadian pipeline-giant Enbridge (NYSE:ENB) recently reached an elite level as it has now increased its dividend for 25 straight years — one of the main characteristics of a Dividend Aristocrat. The company fully expects to keep that streak going because it, too, has a solid financial profile and excellent growth prospects.

In Enbridge’s view, it can grow its earnings by 5% to 7% annually after next year. That should enable the company to increase its payout by a similar rate since it can fully support its growth with internally generated cash and its top-notch balance sheet. It already has a large backlog of expansion projects under construction to drive its outlook for the next few years, with even more under development.

Williams Companies: Current yield 6.5%

Williams Companies (NYSE:WMB) has a bit spottier track record when it comes to paying dividends, as it slashed its payout a few years ago to shore up its financial profile. However, the pipeline company’s leverage has been coming down, even as it’s continued growing its cash flow. That’s enabled it to increase its payout for the past few years.

Williams currently generates enough cash to cover its dividend by a comfortable 1.7 times. Meanwhile, it expects to grow its cash flow by about 5% next year, which should support a similar growth rate in its payout. Longer term, Williams Companies expects its earnings to increase by about 5% to 7% per year, which should support a similar growth rate in its dividend.

Magellan Midstream Partners: Current yield 6.5%

Magellan Midstream Partners (NYSE:MMP) has done a pretty good job growing its payout over the years. While the MLP hasn’t increased its distribution every year, it’s boosted it 70 times overall since its IPO in 2001, growing it at an impressive 12% compound annual rate during that time frame.

Magellan Midstream’s current payout is on as solid a foundation as investors will find in the MLP space. It’s tied with Enterprise Products Partners for the highest credit rating in the sector and currently covers its payout with cash by a comfortable 1.35 times, well above its 1.2 times target.

Because of that top-notch financial profile, the company has the financial flexibility to continue investing in expanding its midstream operations. It expects to invest $1 billion on expansion projects this year and spend another $400 million next year, which should give it the fuel to keep growing its payout each quarter for the next couple of years.

More than just high yields

What makes these dividend stocks stand out is that they offer income-seeking investors more than an attractive income stream. That’s because they all have the financial flexibility to invest in expanding their operations, which should give them the cash flow to keep growing their payouts. That income with upside makes these high-yielders stand out as great ones to consider buying.

Author: Matthew DiLallo

Source: Fool: 5 Rock-Solid Dividend Stocks to Buy Yielding at Least 5%

While the solar stock has been scorching hot this year, it’s well off its high.

First Solar (NASDAQ:FSLR), like most solar stocks, has been red-hot this year. Shares of the solar panel maker are up about 32% year to date, which has outpaced the equally scorching hot S&P 500‘s nearly 30% total return.

With shares of the renewable-energy company soaring this year, investors likely wonder if they’re still worth buying. Here’s a look at the case for and against buying First Solar’s stock these days.

The bull case for buying First Solar stock
The renewable-energy sector is growing at a brisk pace because of rising climate change concerns and falling costs. Global renewable-energy generating capacity is on track to increase by 1,200 gigawatts (GW) from 2019 to 2024. To put that size into perspective, it’s roughly equivalent to the total installed power capacity in the U.S. Solar will account for nearly 60% of that growth, which is great news for solar panel makers like First Solar.

Because of the strong demand for solar panels, the company has already booked enough sales to sell out the current capacity of its new Series 6 module through the middle of 2021, giving the company lots of visibility into its near-term growth prospects. In its view, it should ship 5.4 to 5.6 GW of solar panels this year, generating $3.5 billion to $3.7 billion of revenue. Furthermore, it should earn $2.25 to $2.75 per share, up more than 80% year over year at the midpoint. Those numbers should increase next year since the company will have the capacity to produce 6.7 GW by the end of 2020.

In addition to that visible growth, First Solar has a top-tier balance sheet. It expects to end the year with between $1.7 billion and $1.9 billion in net cash, which is a significant competitive advantage given that most rivals have lots of debt. That gives it the financial flexibility to continue expanding as well as to potentially return cash to investors via a dividend and stock repurchase program.

The bear case for against buying First Solar stock

With First Solar’s stock soaring more than 30% this year, it currently trades at around $56 a share. That has the company selling for more than 22 times earnings, assuming it hits the midpoint of its guidance range. That’s not exactly a bargain, though it’s also not quite as expensive as it was earlier in the year, when shares traded north of $65 apiece. The stock could give back some more gains if the market cools off or it hits a speed bump.

That’s exactly what happened in the third quarter as its stock plunged after it posted lackluster third-quarter results. If the company disappoints again in the fourth quarter, by reporting earnings closer to the lower end of its guidance range, the stock could take another tumble.

Another concern with First Solar is what it might do with all its cash. While the company has been using some of it to expand its Series 6 manufacturing capacity, it has more than enough to suit its current needs, and so it faces a dilemma of what to do with its cash war chest. Ideally, it will use some of the funds to start paying a dividend and opportunistically buy back stock. However, there’s a risk that it could use its financial firepower in less shareholder-friendly ways, such as making an ill-advised acquisition. If the company blows through its cash by making deals, its shares could languish.

Verdict: First Solar still looks like a good stock to buy

While First Solar isn’t as cheap as it was to start the year, it’s not trading at an exorbitant price, given the visible growth up ahead. On top of that, it has a pristine balance sheet, which it could use to reward investors through a dividend and share repurchase program. It looks like a great renewable-energy stock to buy for the long haul.

Author: Matthew DiLallo

Source: Fool: Is First Solar Stock a Buy?

Real estate investment trusts, or REITs, can be great options for investors who want to hold a diversified portfolio of commercial real estate without all the headaches of being a landlord. Investing in a REIT, however, does take some work as investors need to understand how to read and analyze their financial reports.

While REITs use Generally Accepted Accounting Principles, or GAAP, to report their earnings, they also use several non-GAAP, REIT-specific metrics. This guide will walk you through how to read those regulatory filings so you can understand how your investment is performing.

What is a REIT report?

Publicly-traded REITs, as well as many non-listed ones, must file quarterly and annual reports, Forms 10-Q and 10-K, respectively, with the Securities and Exchange Commission (SEC). These regulatory filings contain three key pieces of financial data for the reporting period:

  • A balance sheet.
  • An income statement.
  • A cash flow statement.

Many also contain lots of other information. These reports can include commentary about the real estate company and what occurred during the quarter, market data, and supplemental financial information to provide investors with an even more detailed picture of what happened during the period. That extra information tends to be quite useful because it typically provides a better look at a REIT’s underlying financial results than its GAAP numbers do.

Many REITs will also issue a slimmed-down version of their quarterly and annual reports, usually via a press release. This document is usually much easier to digest as it typically contains:

  • Commentary on the reporting period, often highlighting important financial metrics.
  • The REIT’s balance sheet at the end of the period.
  • An income statement.
  • A reconciliation of the income statement — which conforms to Generally Accepted Accounting Principles (GAAP) — to its funds from operations (FFO), which is a common non-GAAP metric used by REITs.
  • That last metric is vital to REIT investors, and it holds the key to our discussion here.

The one metric REIT investors need to know

For most companies, net income — which is the last number on an income statement — is the most important metric because it tells the owners how much the business earned during the reporting period. But net income isn’t the best way to measure a REIT’s financial performance, mainly because of the impact of depreciation, which can be significant. This noncash expense reduces a REIT’s taxable net income. While the lower net income helps cut a REIT’s tax burden, it masks its real earnings power.

FFO, on the other, adjusts for noncash items like depreciation to provide investors with a more accurate picture of a REIT’s cash flow during the period. It also adjusts for other one-time items, like gains and losses on the sale of properties, which can have a noticeable impact on net income. In addition to reporting FFO as defined by NAREIT, some REITs also provide adjusted and normalized FFO numbers in their report to give investors an even more accurate reflection of their cash flow during the period, which determines their ability to pay dividends.

To help investors see the difference between net income and FFO, let’s look at a real-life example from healthcare REIT Medical Properties Trust (NYSE: MPW). Here’s a snapshot of its consolidated income statement in the third quarter of 2019, which compares that period with the prior year:

As that report shows, Medical Properties Trust’s revenue during 2019’s third quarter rose versus the prior thanks in part to higher rents. However, its reported net income plunged because it recorded a large gain on the sale of an asset in 2018’s third quarter.

Now, here’s a look at the company’s FFO during these two quarters:

As that table shows, Medical Properties Trust’s FFO was not only much higher than its net income after stripping out the effect of depreciation but it also rose versus the prior-year period after adjusting for the impact from gains on asset sales.

Medical Properties Trust also normalized its FFO. It adjusts for “items that relate to unanticipated or non-core events or activities or accounting changes that, if not noted, would make comparison to prior period results and market expectations less meaningful to investors and analysts,” according to a note in its earnings press release. The company does this to help improve “the understanding of our operating results among investors and the use of normalized FFO makes comparisons of our operating results with prior periods and other companies more meaningful.”

Meanwhile, Medical Properties Trust, like many other REITs, also reports adjusted FFO to more accurately reflect its actual cash flow during the period. It does this by adding or subtracting noncash revenue like straight-line rent — which is rent that has accrued rather than actual payments received — as well as other noncash charges or deferred costs.

Why FFO matters to REIT investors

REITs present FFO as their primary financial metric primarily because it is the best way to measure the cash they generated, which they could have paid out to investors via a dividend. In Medical Properties Trust’s case, it reported $89.7 million of net income during the third quarter of 2019, which worked out to $0.20 per share. The company, however, paid out $0.26 per share in dividends, suggesting that the company is paying out more than it’s bringing in each quarter.

But that’s not the case, as its actual cash generation was much higher after adjusting for the impact of depreciation. That’s evident in its normalized FFO, which came in at $147.5 million, or $0.33 per share. That was more than enough to cover its dividend, implying a 79% payout ratio — a comfortable level for a REIT.

Focus on the most important number in the report

Reading all the data in a REIT report can seem overwhelming for beginning investors, but any investment report is much easier to understand when you know where to focus your attention. In this case, it’s on the FFO since that number shows how much cash a REIT is generating, which it could pay out in dividends. That number will allow investors to quickly gauge how well a REIT is performing as well as the safety of its dividend.

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Author: Matthew DiLallo

Source: Fool: How to Read a REIT Report

Few companies understand the inner workings of an oil field more than Core Laboratories (NYSE:CLB). The company makes its living by helping energy companies understand their reservoirs. That gives it keen insight into how much oil the industry can produce.

However, instead of keeping those learnings to itself, Core routinely shares it with its investors, giving them insight into what’s going on beneath the surface of the oil market. The company’s CEO, David Demshur, presented his latest view during the third-quarter conference call. One of the key takeaways is that there’s another gusher of supply coming in 2020. That likely will keep the pressure on oil prices next year, suggesting it could be another challenging one for oil stocks.

Another record year for the oil patch

Demshur started his comments on the outlook for global oil supplies by noting that: “Current worldwide production is about 100 million barrels a day [BPD], an all-time high. This is made up of about 84 million BPD of crude and 16 million barrels of natural gas liquids.” To put that supply number into perspective, it’s a bit above this year’s demand.

That’s due in part to strong production growth in the U.S., which Demshur noted:

Is currently at 12.4 million BPD, another record; 8.85 million of this are from unconventionals — i.e., shale. This is led by the Permian at 4.55 million BPD. Of note is the Eagle Ford is now in permanent decline and the Bakken nears its peak production; 3.35 million barrels are from conventional reservoirs, 1.8 million of this from the Gulf of Mexico, which is also at a record production.

As Demshur pointed out, the U.S. is getting more production from the Permian, Bakken, and Gulf of Mexico, which is more than offsetting the decline in the once fast-growing Eagle Ford shale.

Demshur then noted: “Non-OPEC and non-U.S. production is down for the seventh year in a row, offsetting gains in Russian production, which fell by 50,000 barrels a day in September. OPEC production is right now at an eight-year low at 38.9 million barrels of oil a day, down 750,000 barrels last month, due to the disruption in Saudi production.”

Some of the declining output outside of the U.S. is due to the depletion of older oil fields. The rest is coming because OPEC and Russia are purposely curbing their production in an attempt to keep supplies balanced with demand by offsetting some of America’s growth.

Another gusher is coming in 2020

Demshur then turned his attention to what’s ahead:

Future supply growth will be limited to four countries: the U.S., which is estimated now to be up 700,000 BPD in 2020 — by the way, we’ll take the under on that. Norway, the Johan Sverdrup is to introduce 440,000 barrels of new production in 2020. Guyana, the first oil from Liza is at 190,000 barrels a day early next year. Brazil, probably another 200,000 barrels a day. So a total new supply will be about 1.3 million barrels a day in 2020.

First, he points out that U.S. oil production should continue growing next year, though he believes it will come in less than the currently projected 700,000 BPD increase due to how much drillers are cutting back spending on new wells.

The second driver is the start up of Equinor’s (NYSE:EQNR) Johan Sverdrup oil field in Norway, which is the third biggest in the country’s history. Equinor began producing from the field in October and has already gotten its output up to about 200,000 BPD. That’s nearly halfway to the expected capacity of its first phase, which it should reach next year.

Third, ExxonMobil (NYSE:XOM) expects to start up the first phase of its Liza project in Guyana by the end of this year. It’s one of five developments that Exxon and its partners plan to build in that region by 2025, which could ultimately produce 750,000 BPD.

Finally, Brazil will bring on some new fields that will boost its output. Add it all up and those four sources will bring a net 1.3 million BPD of new supply next year, assuming OPEC and its partners maintain their current production cuts and output falls elsewhere as expected. That growth rate would put supplies a bit ahead of projected demand growth, which the International Energy Agency (IEA) pegs at 1.2 million BPD next year. It initially anticipated that demand would grow by 1.3 million BPD, but cut its view due to concerns over global economic growth. Given that outlook, the IEA sees supplies outpacing demand for much of next year, which will likely keep a lid on oil prices.

On a more positive note, Demshur pointed out that “significantly lower adds are targeted for 2021 and 2022.” If that happens, and oil demand continues rising, then oil prices could begin improving toward the end of next year.

Still too much supply

Core Labs has done the math and sees four sources adding another 1.3 million barrels of crude to an already saturated oil market. With demand growing at a slightly slower pace, that spells bad news for oil prices and oil stocks. That is unless, of course, U.S. drillers and OPEC make more cuts or demand growth accelerates thanks to an uptick in the global economy. Either of those factors could help bring the market back into balance, which would likely help support crude prices.

Author: Matthew DiLallo

Source: Fool: 4 Reasons 2020 Could Be Another Challenging Year for Oil Stocks

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