Despite falling oil prices, Enerplus looks inviting

If you’re looking for a seemingly undervalued stock with a fat dividend, check out Enerplus (NYSE: ERF). It’s a North American oil, gas and natural gas liquids exploration and production company, which, not surprisingly, has been whacked by falling oil prices that can lower its top- and bottom-line results.

Still, there’s a lot of growth potential in Enerplus, even with oil prices at multiyear lows. Enerplus has employed hedging techniques to shield some of its production, locking in higher-than-prevailing prices.

Meanwhile, Enerplus’ juiciest assets are sitting in the oil-rich Williston Basin, which spans North Dakota, South Dakota, Montana and Saskatchewan.

Enerplus has also been a leader in “downspacing” – putting more than one well in a space where, traditionally, only one well would operate. This method could give Enerplus a way to quickly boost its yield and profits.

Enerplus offers investors a monthly dividend with an annual dividend yield recently near 10 percent. It’s not without risk, especially if oil prices keep falling, but with a forward-looking price-to-earnings (P/E) ratio near 11, well below its five-year average, Enerplus is inviting.

Ask the Fool

Q: What’s a stock dividend? – G.W., Manchester, New Hampshire

A: You’re probably familiar with traditional dividends, which involve companies with excess cash paying out some of it to shareholders in the form of cash dividends every quarter (and sometimes every month).

But not all dividends are paid in cash. A company might opt to reward shareholders with additional shares of stock, instead. That can seem more appealing for us investors, but by increasing its share count, the company is diluting the value of existing shares. (Imagine a pizza, where the more slices there are, the smaller each one is.)

Q: How many shareholders do companies usually have? – P.Y., Memphis, Tennessee

A: It can vary widely. Privately held companies might have just a few, but publicly traded ones typically have many thousands. Hormel, for example, cites about 13,800 shareholders of record, while Kroger has 30,449.

Keep in mind that the number of shareholders changes all the time as shares are bought and sold, and that the numbers are rarely exact. Many shares are held in “street name,” too, meaning that their brokerage holds their shares for them, and the company may not know how many individuals make up that block of brokerage shares or who they are.

My dumbest investment

My dumbest investment move was listening to a broker from a large brokerage. I figured he had to be very savvy to work there. I told him, back around 1994, to buy shares of America Online, Dell, Microsoft and Johnson & Johnson, among other stocks.

Instead, he pushed his presumably better ideas and soon I was invested in them. Then, just before some of them went up, he said that his brokerage was recommending real estate investment trusts (REITs) now. I was moved into some of them, and they dropped in value. For all this, I was paying him more than $6,000 per year. I could have had millions by investing on my own. – F.I., Dover, Oklahoma

The Fool responds: Some financial advisers have conflicts of interest, getting compensated by having you make certain investments. And a brokerage will profit more if you trade frequently, as it charges trading commissions. You might already be a savvier stock picker than your adviser, or you can become one by reading and learning. You’ll cost yourself less, too, investing on your own. Remember, some brokers are salespeople.