Genie Energy (GNE) Stock Purchase – Israel’s Future Oil Giant

2016 has started with a massive selloff in global equities. Stock prices have fallen amid the energy crash, fear of Chinas slowdown and the Feds Interest Rates hike on emerging countries. The financial media always seems to point out that falling stock prices are a bad thing but for someone like me who is in their asset accumulation part of their lifecycle, the sell-off is good news. I am now able to buy ownership stakes in businesses for less than I would have been able to before the current turmoil. Buying stocks at lower valuations is great as you get a higher dividend yield and  you are able to compound your money at higher rates over the long term.

The current January 2016 sell-off has hit certain stocks more than others. Energy related stocks have been some of the most hardly hit and as a result, there are some shares offering great value at current prices. One such company is Genie Energy (NYSE:GNE).

I bought Genie Energy stock yesterday. Many people have not heard of this company as it is under the radar of most, but I have been following it for the good part of a year now. Genie energy operates through two segments, Genie Retail Energy is a retail energy provider predominantly based in Eastern United Staes and  which Genie Oil and Gas which is a development and exploration company.

I was able to acquire shares yesterday at a price of $7.46  (£5.25) thus bagging myself a dividend yield of 3.21%. The 18 shares that I bought will provide me with $4.32 dividends a year. This may sound like a paltry sum to many as they believe that they need a whole Napolean-like army to start investing. They suffer from the “not enough” mentality; namely that if they aren’t making £1,000 or £5,000 investments at a time, they will never become rich. What these people don’t realise is that entire armies are built one soldier at a time; so too is their financial arsenal. So even if you have £100, it would be prudent to start investing and to add to that investment over time.

Why Genie Energy

On the face of it, Genie Energy appears just like any other energy company. But once you dig deep and really study the company, it seems to be a bit special.

Alongside its core retail energy business in the US, Genie has a subsidiary oil company that drills for oil in Israel. It recently made a huge find in the Golan Heights region. The one obstacle it faces is the territorial dispute over the Golan Heights Region as both Isreal and Syria lay claim to the region. But in recent months, Israel has accelerate its position to lay claim to the region. The Israeli prime minister,Benjamin Netanyahu, is looking to get Washington on his side and officially lay claim to the area.

One of the reasons I think Israel will capture Golan Heights to the benefit of Genie energy is because of the board of the company.The board compromises of a group of people that reads like a whose who of business, politics and finance. Members of the cord include:

  • Lord Jacob Rothschild – Chairman of the J. Rothschild group of companies and of RIT Capital Partners plc
  • Rupert Murdoch – Founder and Executive Chairman of News Corporation
  • Richard ‘Dick’ Cheney – Former US Vice president
  • Dr. Lawrence Summers – Former Secretary of the Treasury and served as the 71st Secretary of the Treasury under President Clinton and as Director of the National Economic Council for President Obama.
  • R. James Woolsey – Former director of the CIA
  • Michael Steinhardt – Billionaire hedge fund manager
Genie Energie's board reads like the whos who on international business, politics and finance.

Genie Energie’s board reads like the whos who on international business, politics and finance.

When you get a group of people of this calibre together for a company with a market cap of less than $200m, you know something special is going to happen!

Investing in stocks with less than £100

In the UK, buying stocks and shares has historically been associated with high dealing charges. The average dealing charge to buy stocks is around £10. The argument can easily be made that you need to invest at least £1000 per deal to get value and to not let dealing charges eat into your returns.

Although we have providers such as Hargreaves Lansdown and AJ Bell Youinvest, charging £1.25 for consistent monthly transactions, there is only a limited number of stocks this price is offered on. Whilst this is great for someone who wants to Pound Cost Average into FTSE 100 shares or an index fund, it is not the best for me.

Thankfully, Degiro came into the UK market last year. IT offers rock bottom dealing commissions. For UK shares, charges are £1.75 + 0.004% commission a trade and for US shares, charges are €0.50 + USD 0.004 per share.

As I used Degiro for this particular transaction of buying Genie Energy stock, you can understand why it made sense for me to initiate  a small position of less than £100. Getting  price of $7.46 is great but I feel that oil prices will remain low or even fall some more during the first half of 2016 before picking up in the second half of 2016. So whilst I was able get Genie at an attractive price, I left some room to average down if the stock was to fall further. (Annoyingly, the share price has increased today but hopefully it will drop soon – Never thought I would ever hear myself saying that !)

All in all, it only cost me £0.44 to buy 18 shares in Genie Energy. That is a dealing charge of less than 0.41% for a trade under £100!

(Just a precaution about using Degiro, whilst it is a great platform, it does have some caveats. For the standard account, where your shares can be loaned to third parties for options trading there is no charge for any dividend payments you receive.For a custody account where the securities are held separately and are unable to be loaned to third parties,  there is a dividend processing charge. The charge is the lower of € 1.00 + 3.00% of dividend or 10% of the dividend payment.)

Withholding Tax

The one thing I hate about owning foreign stocks is withholding tax! As a UK resident investor, the current withholding tax on dividends for US stocks is 30%. This drops to 15% if you complete a w8-ben form. 15% is still a very high figure. If a US listed company was to pay me £100 in dividends, I would only receive £85 as the other £15 would go to the US government. Even if you were to hold these stocks in a tax shelter such as an ISA, y the withholding tax still gets deducted.

This for me is the biggest downside of foreign stocks.

As a result of this, I bought Genie Energy using  a plain vanilla taxable account. I could offset the 15% tax paid to US authorities against my UK tax paid. But I don’t envision this happening any time soon as from April 2016, dividend income received under £5000 will be tax free.