Higher Oil Prices Set Stage for Energy Sector Profits

The energy sector is poised for significant profits, even if oil prices remain in the $80-to-$100 range. This is according to Tim Plaehn, editor of The Dividend Hunter, who suggests that upstream producers will continue to be highly profitable.

Refiners' profits are also at record levels due to a shortage of diesel and jet fuel caused by reduced exports from Russia and the Persian Gulf. As a result, investors looking for an income-focused way to play higher energy prices may want to consider the State Street Energy Select Sector SPDR Premium Income ETF (XLEI).

XLEI holds shares of the S&P energy sector through its underlying asset XLE, but generates additional cash flow by selling call options on those shares. This covered call strategy allows the fund to pay monthly dividends with a recent indicative yield of 15.7%. The year-to-date total return is 30.5%, and the one-year return is 36.9%.

Plaehn expects oil prices to stay elevated, but notes that profits will be massive if they remain in a range of $80-to-$100. He recommends buying XLEI for investors looking for a high-yield way to invest in the energy sector.