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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

The Safest Way To Invest In Oil Today

Investors deploy a lot of strategies to find winning stocks: Some run investment screens based on various financial metrics, attend industry conferences to find well-positioned business models or simply focus on the top ideas from sources they know and trust.

For many loyal StreetAuthority readers, Amy Calistri is a very trusted stock source. For years, she's shown an uncanny knack for finding stocks with robust dividend yields. Even more impressive: almost all of her picks seem to rise in value (often robustly) -- it's hard to find examples that lose value. She's one of our most popular newsletter writers -- and for good reason.

From time to time, I like to peruse Amy's stock portfolio for her Daily Paycheck newsletter. In addition to her regular selection of buy-rated stocks, you'll also find another category of dividend-paying stocks, what Amy calls "Fast Dividend Growers." These stocks don't offer the typical high yields that Amy is often known for, but instead appear poised to aggressively expand dividend payouts. One such stock just delivered Q3 results and represents everything you should look for in a dividend growth stock.

Yet Another Great Refiner
A month ago, I wrote about how oil refiners represent safety in a troubled sector. As I noted then, "investors are dumping refinery stocks, even though the broader operating backdrop for these firms is actually improving." I cited a few favorite stocks in that piece, but Amy recommends a great refiner that fits the bill: Western Refining, Inc. (NYSE: WNR), which she gives five (out of five) stars in her Fast Dividend Growers portfolio.

Here's a few key highlights from the company's Q3 conference call:

-- The quarterly dividend received a sequential boost, to $0.30 a share from $0.26 a share, annualizing to a $1.20 a share payout. That's up from an annual $0.64 a share in 2013. Add in the fact that management has also just decided to give shareholders a one-time $2 a share dividend. That works out to be a 7.1% dividend yield for investors in 2014.

-- Management also authorized a fresh $200 million share buyback and spent more than $40 million on buybacks in the third quarter under a prior plan.

-- According to the company, "including the announced special dividend, and share repurchases through October 31, 2014, Western will return approximately $450 million in cash to shareholders in 2014." This is a company with a $4.5 billion market value.

How can Western Refining afford to be so generous? Because business is good and getting better. The refiner just topped Q3 profit estimates by a hefty 18%, and the outlook for 2015 and 2016 should remain bright. Analysts at Citigroup anticipate operating cash flow to exceed $650 million in 2015 and 2016, while capital spending should be around $250 million. That leaves around $400 million in free cash flow to -- you guessed it -- support more buybacks and one-time dividends.

To understand why this refiner is especially well-positioned, you need to dig into the current dynamics playing out in various shale regions. WNR processes oil that is produced in the Midland shale area. Prices in that region are bit distressed as a lack of pipeline capacity strands a lot of the oil production, forcing producers to lower their prices to boost demand.

Midland oil is roughly $8 cheaper than oil priced at the Cushing, Oklahoma oil storage depots (known as the Midland-Cushing differential). And that means that WNR can produce gasoline, diesel or other distillates with a lower set of costs, and thus higher margins, than refiners buying crude at Cushing prices.

WNR is also set to profit from its own pipeline (known as TexNewMex) that will transport gasoline and other fuels. The pipeline, which is expected to open in the first quarter of 2015, will boost margins by cutting out distributors.

Analysts at Citigroup have spotted another catalyst for WNR. They raised their rating this summer from neutral to buy (with a $55 price target), noting that other companies "have unlocked greater dividends and dividend growth through the MLP structure and we believe that WNR could use these precedents to restructure into a holding company with the limited and general partnership interests." Management discussed making such a move on the Q3 conference call, but intends to go slowly to be sure that any new structure is done correctly.

Risks To Consider: Oil prices are quite volatile these days and some of the spreads that WNR is currently benefiting form could start to narrow.  

Action To Take --> The prospect of robust ongoing cash flow, along with management's stated intention to keep rewarding shareholders with buybacks and dividends, makes this one of the most compelling Daily Paycheck stocks of 2015. And when you consider that U.S. oil output appears set to keep growing in coming years, WNR is positioned for long-term growth, as it invests in the pipelines and storage assets to best capitalize on its refinery capabilities.

As I mentioned above, Amy Calistri is a master at finding dividend paying stocks and making them work for you -- and your retirement. Her strategy is so successful that she was invited to speak in front of a live studio audience at St. Edwards University. To find out how she got a dividend paycheck for each day of the year, click here.

This article was originally published on StreetAuthority.com: The Safest Way To Invest In Oil Today