Dividend investors typically pay a premium for the right to own shares in a security that pays a dividend yield close to that of a high-yield bond, for the ability to own both the yield portion as well as the capital appreciation portion of the underlying security.
On rare occasions, such as cyclical downturns in various industries, it is possible to obtain both yield and capital appreciation potential at a steep discount. I believe that such a situation exists today with PBF Energy Inc. (NYSE:PBF).
PBF is an independent petroleum refiner, providing unbranded finished goods to consumers throughout the United States. The refining business has been hit hard of late, with oil prices sustaining lows which many analysts thought would be only temporary, resulting in a situation where refining margins and profits have deteriorated along with the broader industry.
PBF’s business model and underlying fundamentals, however, make this company a great contrarian play to play any sort of recovery in the price of oil over the medium term. The company offers a relatively safe dividend of more than 5% paid quarterly, with its current distribution falling within the company’s trailing 12-month profit.
The refining business is one I prefer over the oil extraction business, as refineries typically have more latitude to keep margins healthy in good times and in bad, or at least much more so than oil extraction companies which tend to be price-taking businesses.
