Natural Gas Could Be a Warm Place for Investors Fleeing a Frigid Market

The utility stocks in the sector serve as a traditionally safe investment, buoyed by revenue from dividends, and has actually shown growth in recent months while oil has tanked.
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Natural gas is becoming a popular play for energy investors looking to keep warm amid a cooling market and increasing calls to diversify away from traditional oil investments.

As such, bearish analysts and strategists like Stifel's head of equity strategy Barry Bannister have recommended natural gas plays like Sempra Energy (SRE) - Get Report as a safe haven. At the same firm, Cheniere (LNG) - Get Report has been highlighted as the "800 pound gorilla in the market."

Dividend Driver

One of the key drivers of natural gas and energy investments in general are dividends.

"Regular people need to be defensive," Stephen "Sarge" Guilfoyle said in an interview outside of the NYSE, a building he traded in for decades. "You want to have some dividends, so I'm going to go out on a limb and say I need some energy in my portfolio."

He advised that when the market is turbulent, as it is at present, dividends are a safe place to keep your money, especially in industries with largely ineleastic demand like energy.

Ryan Kelley, portfolio manager of Hennesy Funds' Gas Utility Investor Fund (GASFX) - Get Report , concurred with such analysis, noting that part of the appeal of fund's like his, which draws one-third of its income from dividends, is the regular income stream from high-dividend energy stocks.

Environmental Impact

For more conscious investors, the environmental impact of natural gas is also less harsh, which provides it opportunity to grow despite the move away from fossil fuels in developed markets.

"The primary reason we like natural gas is that it is a continually growing industry," Kelley told Real Money.

He added that the sector works as an appropriate go-between for those trying to switch from high carbon emission fossil fuels to renewables, something which he sees as the trend for the long term.

"We still have a long way to go before we switch over to renewables," Kelley explained. "In the meantime, the switch from coal to natural gas is dramatic."

As such, he remains confident the returns that his fund sees should only be bolstered into the coming years.

Export Opportunity

The industry could also have some significant growth drivers for U.S. natural gas companies on the macroeconomic scale, especially in Europe.

"For Europe, expanding LNG means energy security," U.S. Ambassador to Germany Richard Grenell said in a statement on the market's recently more open stance. "Diversifying sources, routes, and types of energy is crucial. And with the previous U.S. government delays now gone, U.S. LNG will be an industry game changer soon."

Dr. Tim Boersma, Director of Global Natural Gas Markets at Columbia University's Center on Global Energy Policy, noted that many European nations have become increasingly dependent on Russia and majority state-owned entities like Gazprom (OGZPY) for energy, threatening a balance of power.

"After the investment in Nordstream 2, natural gas from Russia could reach almost 70% of German imports," he explained to Real Money. "The imports from the U.S. could act as an insurance policy so they do not overly rely on one or two countries to supply the market."

As such, the U.S. market stands to gain substantially from the maintenance of a European balance of power.

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