This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

A bear market can be brutal for investors. The more than 20% decline in stock prices has many investment portfolios well off their recent peak.   

However, bear markets can be a blessing in disguise if you own dividend-paying stocks. That's because there's an inverse relationship between stock prices and dividend yields. With the bear market taking stock prices down sharply, dividend yields are soaring. That allows investors to reinvest their dividends at higher yields. They can also use their idle cash to generate more income. That can enable investors to supercharge their passive income.   

Get more out of your reinvested dividends

Some investors automatically reinvest their dividends, while others manually invest that cash as they see fit. Either way, a bear market turns that dividend income into even more passive income.

For example, if an investor owned 100 shares of Crown Castle (NYSE: CCI), a leading real estate investment trust (REIT) focused on communications infrastructure, they'd receive $147 per quarter in dividends. If they reinvested that money into buying more shares of Crown Castle earlier this year when shares had a 2.6% dividend yield, it would boost their annualized dividend income by $3.80.

However, with shares falling more than 20% this year, the stock now yields 4%. Because of that, if an investor reinvested the company's $147 quarterly dividend payment at that yield, it would add $5.88 of annualized incremental dividend income. While $2 of additional annual dividend income might not sound like much, it adds up as it gets reinvested and compounded over the years. Crown Castle expects to grow its dividend by 6% to 8% per year, powered by increasing demand for communications infrastructure to support the build-out of 5G networks. 

Meanwhile, Crown Castle shareholders who don't automatically reinvest their dividends have the flexibility to invest that money into an even higher-yielding opportunity. For example, they could buy shares of VICI Properties (NYSE: VICI), a REIT focused on experiential real estate. It currently yields 5.1%. Because of that, an investor could turn their $147 Crown Castle dividend payment into a $7.50 and growing passive income stream by purchasing shares of the higher-yielding VICI Properties. The casino owner has recently increased its payout by 8%, its fifth raise since its formation. 

Turn idle cash into an attractive passive income stream

In addition to earning more income by reinvesting dividends, bear markets allow investors to turn cash sitting on the sidelines into a passive income stream.

For example, shares of Agree Realty (NYSE: ADC) have fallen more than 15% from their recent high. That has pushed up the REIT's dividend yield to 4.1%. At that rate, an investor could turn $1,000 of idle cash into a $3.40 monthly passive income stream ($41 annualized) since it pays a monthly dividend. That income stream will likely steadily rise in the coming years. Agree Realty has grown its dividend payment by 7.8% over the past year and at a 5.5% annual rate over the last decade. The REIT has a solid financial profile, giving it the flexibility to continue acquiring income-producing real estate to keep growing the dividend. 

Meanwhile, the bear market has brutalized shares of Digital Realty (NYSE: DLR). The data center REIT's stock is down over 40%, pushing its dividend yield above 5%. That would turn a $1,000 investment into a $50 (and growing) annual passive income stream. The company increased its payout by 5% earlier this year, marking its 17th straight year of giving investors a raise. With a strong balance sheet and a large pipeline of data centers under development, Digital Realty should be able to continue growing its dividend in the future. 

Bear markets can accelerate your passive income

For those fully invested in non-dividend-paying stocks, bear markets are a difficult time. However, they're an opportunity for those with cash or income-producing assets. Bear markets can accelerate investors' capacity to generate passive income because they can turn dividend income and idle cash into bigger income streams. That can enable investors to make more money in the future, putting them even closer to reaching their financial goals. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post The bear market is becoming a passive-income investor's dream appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Matthew DiLallo has positions in Crown Castle, Digital Realty Trust, and VICI Properties Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Crown Castle and Digital Realty Trust. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended VICI Properties Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett has been making a bold bet on oil prices over the past year. His company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), has been buying shares of oil giants Chevron (NYSE: CVX) and Occidental Petroleum (NYSE: OXY) hand over fist to capitalize on the rise in crude prices.     

While oil prices have cooled off on fears that we're about to enter a global recession, that slump has reversed recently thanks to OPEC. The group of oil-producing nations has surprisingly agreed to cut its production by a whopping 2 million barrels per day, giving crude prices a lift. That should provide a boost to Buffett's oil stocks in the future. 

Taking matters into their own hands

Oil prices have been on a wild ride this year. The price for Brent crude, the global benchmark variety, started 2022 below $80 a barrel. It soon spiked to more than $120 a barrel following Russia's invasion of Ukraine. It remained in the triple digits well into the summer before cooling off on concerns that the global economy was starting to slow. Brent recently bottomed out in the low $80s.

However, it surged above $90 a barrel on rumors that OPEC was about to cut its production. While initial reports suggested the group, along with other nations collectively known as OPEC+, would slash their output by 1 million barrels per day, they have since agreed to an even deeper reduction of 2 million barrels per day. It's an astonishing development considering that analysts believe the market might not have enough oil supply to meet demand. 

The cut should at least put a firm floor under oil prices. Meanwhile, it sets crude up to rally sharply if there's an unexpected supply issue or demand doesn't cool, as many anticipate in a global recession.

Giving Buffett a helping hand

Stable to rising crude prices should be a boon to Buffett's oil holdings. Berkshire Hathaway has gobbled up more than 163.5 million shares of Chevron, equal to 8.4% of the oil giant's outstanding shares. That position is worth over $25 billion, making it Buffett's third-largest stock holding at 8% of his portfolio.   

Meanwhile, Buffett took advantage of a decline in Occidental Petroleum's stock price last month as oil prices cooled off to buy another 6 million shares. He now holds 20.9% of the company's outstanding shares. That position is currently worth nearly $13 billion. Buffett has regulatory approval to take that position up to 50% in the future.

Chevron has capitalized on rising crude prices this year. It produced $21.8 billion of cash flow from operations during the first half, nearly double the $11.2 billion it generated during that same period last year. That gave it the funds to boost its investments in traditional and new energy by 50%, increase its dividend for the 35th straight year, raise the top end of its share repurchase range to $15 billion, and pay down additional debt.

Chevron's cash flow ebbs and flows with oil prices. Because of that, it will likely see a boost from OPEC's move to bolster crude prices. That would give it more money to allocate toward creating value for shareholders.

Occidental Petroleum is in the same boat. It has cashed in on higher oil prices this year. It generated a record $4.2 billion of free cash in the second quarter alone. That gave it the funds to repay more than $8 billion of debt by May, quickly exceeding its target. This achievement gave Occidental the confidence to significantly increase its dividend and launch a $3 billion share repurchase program while setting an additional $5 billion debt reduction target. 

The oil company is more likely to be able to repay debt and return capital to shareholders at a faster rate now that OPEC is making this surprising move to support oil prices. This catalyst could fuel a continued surge in Occidental's share price this year.

Boosting Buffett's bold oil bets

OPEC has had enough of crude's recent slide. That's evident in its surprising decision to slash its output by 2 million barrels per day. This move could drive oil prices higher in the coming months.

That likely rebound should be a boon to Buffett's oil investments because it will enable Chevron and Occidental Petroleum to generate more cash. They can use those funds to reduce debt and return more money to investors, which should help boost their stock prices. That unexpected intervention makes Buffett's oil stock bets look like they'll continue to pay off.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Warren Buffett is getting a helping hand from a surprising source appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Matthew DiLallo has positions in Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.   

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett has been buying shares of oil giant Occidental Petroleum (NYSE: OXY) hand over fist these days. His company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), recently bought another 5.99 million shares, boosting its stake to 20.9%. Buffett took advantage of the recent slide in oil prices and Occidental Petroleum's stock to increase Berkshire's position in one of its top 10 holdings in late September.  

While oil is the primary focus of Buffett's bold bet on Occidental Petroleum, it's likely not the only thing he sees in the company. Most investors have overlooked that Occidental is a leader in carbon capture and sequestration (CCS), a process that captures carbon dioxide and sequesters the greenhouse gas underground. Occidental sees it as a $3 trillion to $5 trillion future global market opportunity. It could one day supply the company with as much earnings and cash flow as its current oil and gas business.   

That potentially massive market opportunity is leading the company to continue taking strides to capitalize on the upside it sees ahead. This strategy could give the oil stock the fuel to deliver big-time returns for Buffett in the coming years.  

Securing another potential partnership

Occidental Petroleum has been securing partners to pursue a wide array of CCS opportunities. Its latest one is with Western Midstream Partners (NYSE: WES), a master limited partnership (MLP) it used to control. The partners signed a letter of intent to pursue opportunities to produce and deliver low-carbon intensity oil and gas products. 

Occidental will explore installing carbon capture facilities on its upstream oil and gas activities in the Texas Delaware and Colorado DJ Basins. Meanwhile, Western Midstream will explore installing carbon capture facilities on its natural gas plants and other major gathering and treating facilities. Western would also explore providing carbon dioxide transportation services from those capture facilities to Occidental's carbon dioxide delivery facilities. The companies intend to consider providing carbon management services to other emitters interested in reducing their emissions.

This partnership can potentially reduce the emissions of Occidental Petroleum's oil and gas production in the Delaware and DJ Basins, enabling it to market net-zero output. Meanwhile, it could supply Western Midstream with a stable source of cash flow as it transports carbon dioxide to Occidental's facilities.   

Building out a robust solution

That partnership is the latest in a string of agreements Occidental has signed this year to build its CCS business. It's creating an end-to-end solution that can manage the entire lifecycle of carbon.

In late August, the company started construction on the world's largest direct air capture (DAC) plant in Texas' Permian Basin. Once operational in 2024, the plant can capture up to 500,000 metric tons of carbon dioxide per year, with the potential to scale up to 1 million metric tons in the future. That's one of 70 DAC facilities the company intends to deploy worldwide by 2035. 

Occidental has already signed commercial contracts to support that first facility. Aerospace leader Airbus has agreed to purchase 400,000 tons of carbon removal credits over four years with an option to secure more volume in the future. Meanwhile, SK Trading will buy up to 200,000 barrels of net-zero oil for five years, supported by the carbon dioxide removed from the atmosphere in Occidental's first DAC. 

The company has also secured several other midstream partners to help it transport captured carbon to sequestration and utilization sites. It signed a deal with Enterprise Products Partners (NYSE: EPD) to explore a potential carbon dioxide transportation and sequestration solution for the Texas Gulf Coast. Enterprise would use a combination of new and existing pipelines to support the project. Meanwhile, Occidental signed a similar agreement with EnLink Midstream (NYSE: ENLC), focusing on the Mississippi River corridor from Waggaman to Baton Rouge, Louisiana. EnLink would also use new and existing pipelines to transport the captured carbon. 

Finally, the company has been locking up underground pore space suitable to sequester carbon. It has leased more than 30,000 acres of subsurface pore space from leading timberland REIT Weyerhaeuser (NYSE: WY) in Louisiana. Weyerhaeuser will continue to manage the forest while receiving fees for leasing the pore space to Occidental. The company signed a similar deal with Manulife Investment Management to lease 27,000 acres of timberland in Western Louisiana for a potential carbon sequestration hub. 

The overlooked upside potential of Buffett's top oil pick

Most investors see Buffett's continued buying of Occidental Petroleum stock as a bet on oil prices. While that's certainly the case, investors shouldn't overlook the enormous upside potential of the company's emerging CCS business. It could provide a big boost for Buffett's investment in the coming years if the market develops as Occidental anticipates.   

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post This top Warren Buffett stock has enormous overlooked upside potential appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Matthew DiLallo has positions in Berkshire Hathaway (B shares), Enterprise Products Partners, and Weyerhaeuser and has the following options: short October 2022 $40 calls on Weyerhaeuser. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Enterprise Products Partners. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.  

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

There's no way to sugarcoat things. The past few months have been absolutely awful for investors. The S&P 500 Index has plunged a gut-wrenching 18% so far this year. Multitudes of stocks have plummeted even further from their peak. There's no end in sight to the selling, given all the headwinds currently facing the global economy. 

Difficult periods like this can make even the most seasoned investors want to throw in the towel and liquidate their portfolios. However, I'd like to encourage you to press through this challenging period. I want to share my investing story and some data to give you some hope that this, too, shall pass.

I learned to invest the hard way

I was only a few years into my investing journey when the Financial Crisis upended the global economy and stock market. Before that event, my experience with stocks was that they went up. That had my confidence swelling to the point of overconfidence.

So I made some really reckless investment decisions as stocks started to crash. I'm lucky that I didn't completely wreck my portfolio. I started buying stocks just because their price went down a lot. I focused on the stock price and not the underlying business. One of the most foolish (and I mean really small "f" foolish) moves was to buy call options on investment bank Lehman Brothers on the firm belief that the government would bail them out. Suffice it to say; I lost a lot of money on that gamble.

As my portfolio dove deeper into the red, accelerated by my ill-timed shift from an investor to a trader, I got to the point in early 2009 where I had to take a break from investing. However, instead of liquidating what remained of my portfolio, I just stopped making changes. I took a month off from buying and selling stocks and reset my strategy.

I learned a few important lessons during this challenging time:

1. Forget about the stock price; focus on the business: I stopped buying stocks because they had low price tags and focused on investing in companies that I believed could thrive over the long term.
2. Credit is crucial: I started putting more emphasis on a company's balance sheet, focusing on those with investment-grade credit ratings because that gave them more financial flexibility to survive tough times so that they could thrive in the eventual recovery.
3. Cash flow is king: This lesson goes hand in hand with having a strong balance sheet. Cash flow gives companies the funds to expand when credit is unavailable.

As tempting as it was to throw in the towel on investing in 2009, I'm so glad I didn't. That challenging period made me a better investor, and my portfolio's value has grown by leaps and bounds over the more than a decade since the Financial Crisis. While, like most investors, the value has fallen quite a bit from the peak of late, I sleep well at night knowing that, for the most part, I own a portfolio filled with several high-quality companies with strong balance sheets and cash flows that will weather this storm and thrive on the other side.

These numbers urge you not to give up

I want to pivot from my story to share an eye-opening chart I recently came across that shows the power of persevering as an investor. When stocks are in freefall, it can make an investor think about liquidating to avoid further damage. However, historically some of the market's best days have come during these periods. Investors who give up on the market could see their returns suffer.

Data source: CNBC and Bank of America. 

The middle column shows the total return earned by investors over decades. Over the long term, investors who kept their money in the market earned a staggering return, despite enduring their share of bear markets. However, if an investor liquidated their portfolio and went to cash, they ran the risk of missing out on some of its best days. They'd earn much lower returns if they were on the sidelines during the 10 best days each decade.

Stay the course

These are definitely challenging days to be an investor. However, please don't give up because they should eventually pass. Instead, use this time to reevaluate your investment strategy so that your portfolio can thrive again when the market eventually recovers.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Investing can be brutal at times, but don't give up now appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Matthew DiLallo has no position in any of the stocks mentioned. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The oil industry is in the fight of its life. It's in the midst of another difficult downturn, the second in the past five years. However, this one seems different as the COVID-19 pandemic has caused so much demand destruction that the oil industry might never recover its former peak. That's mainly because renewable energy hasn't skipped a beat during the pandemic, as it has taken advantage of this downturn to grab even more market share.

Because of that, the oil industry's future has dimmed considerably over the past year. That's why it might be time for investors to forget about buying oil stocks and instead concentrate their efforts on the renewable energy industry.

Polar opposite outlooks

Earlier this year, oil giant BP (NYSE: BP) unveiled its latest long-term energy market outlook. The company painted a bleak picture. It sees fossil fuels losing market share to renewables even in its best-case scenario where governments don't enact legislation that further accelerates the transition to renewables. In its business-as-usual view, fossil fuels will account for less than 70% of the total share of primary energy by 2050, down from 85% this year. Meanwhile, under two other scenarios (rapid and net-zero), that number would decline to 40% and slightly more than 20%, respectively, by 2050.

The main reason fossil fuels will be losing ground is that they can't compete with renewables, which are cleaner and increasingly cheaper. Onshore wind is already less expensive than using combined-cycle gas turbines to generate electricity. Meanwhile, solar is on track to become the lowest-cost form of bulk power within the next few years.

Leading renewable energy project developers including Brookfield Renewable Partners (NYSE: BEP)(NYSE: BEPC) and NextEra Energy (NYSE: NEE) are seeing an acceleration in opportunities to invest in new renewable energy projects. For example, Brookfield Renewable anticipates growing its earnings per share at an 11% to 16% annual rate through at least 2025, powered in part by its extensive development project pipeline. Meanwhile, NextEra recently boosted its 2021 earnings growth outlook and extended its guidance through 2023 because of all the growth it sees ahead from renewables. 

Contrast those views with the outlooks of most oil companies. For example, Chevron (NYSE: CVX) recently lowered its long-term investment guidance range from a range of $19 billion to $22 billion per year through 2025 to a range of $14 billion to $16 billion annually. Meanwhile, ExxonMobil (NYSE: XOM) recently cut $10 billion per year out of its long-term spending plan, bringing its new budget range down to $20 billion to $25 billion annually through 2025. Because of these reduced spending levels, most oil companies won't grow very much, if at all, in the coming years.

If you can't beat 'em, join 'em

Given that dire outlook for the oil patch, BP plans to transition away from fossil fuels over the next several years. The company intends to cut back its investments in fossil fuels and redirect that capital toward low-carbon projects. As a result, the company anticipates that its oil-equivalent production will decline by 40% over the next decade. Meanwhile, the company expects to grow its low-carbon businesses, such as renewables and bioenergy, tenfold during that timeframe.

Several other energy companies are making similar moves. For example, Total (NYSE: TOT) plans to de-emphasize oil, as it sees oil products sales falling 30% over the next decade. It plans to steadily replace oil by focusing on gases (including liquefied natural gas) and electrons (by growing into a world leader in renewable energy).

Meanwhile, Enbridge (NYSE: ENB) and Equinor (NYSE: EQNR) are developing offshore wind projects as they begin to slowly transition away from their current oil focus. Even Chevron is starting to move away from oil. It plans to invest more than $300 million in 2021 to advance the energy transition. 

The choice seems clear

It's becoming increasingly likely that global oil consumption has peaked. the industry seems to be heading toward a decline over the next several decades, which could be quite steep. Thus, there's limited upside for oil stocks.

Contrast that view with renewable energy, which is on track for accelerated growth over the next decade as costs continue to come down. Companies focused on this industry have the potential to generate strong growth and high investment returns. That's why it makes more sense to forget about oil stocks and focus on the brighter future in renewables.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Forget oil stocks: Renewable energy stocks are better long-term buys appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• New strategy sparks rebound in this $5bn ASX stock – what's next?
• This ASX biotech stock could more than double Canaccord Genuity says
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Matthew DiLallo owns shares of Brookfield Renewable Inc., Brookfield Renewable Partners L.P., Enbridge, and NextEra Energy. The Motley Fool Australia's parent company owns shares of and recommends Enbridge. The Motley Fool Australia's parent company recommends NextEra Energy. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.