Energy’s recovery pays off for investors. Energy prices were under serious pressure about three years ago and crude oil briefly dipped to less than $27 a barrel in 2016. But crude has since approximately tripled…
Energy’s recovery pays off for investors.
Energy prices were under serious pressure about three years ago and crude oil briefly dipped to less than $27 a barrel in 2016. But crude has since approximately tripled in price — and a lot of the challenges facing the energy industry evaporated. While some volatility is expected in commodity stocks, it’s important to remember many oil companies made tough choices to stay afloat, streamlining operations and keeping plenty of cash cushion. In the absence of storm clouds, many energy companies are sharing a bigger portion of profits with investors via generous dividends. This means big income now, and a hedge against future declines. Here are nine energy picks for income investors to consider.
Everybody knows Exxon, one of the biggest energy companies in the world. The company does everything with fossil fuels, from retail gasoline sales to offshore exploration to petrochemicals and plastics. With more than $300 billion in annual revenue, this company has consistent cash flows to fuel a consistent dividend. That payday is growing, too, as XOM stock has grown its dividend payout once a year for the last 35 years.
Formally the China National Offshore Oil Corp., CNOOC is a state-run oil behemoth in China that has a market value of about $90 billion and energy reserves that total nearly 5 billion barrels of oil. Sure, oil prices may fluctuate month to month. But as a regional superpower with the blessing of Beijing, CEO stock is about a stable an energy company as they come and has a consistent history of dividends. Shares are listed on the New York Stock Exchange, too, so it’s incredibly easy to gain access to this Asia energy stock.
Investors looking outside America but who don’t like the idea of more volatile emerging markets should consider French energy giant Total. Headquartered in Europe, this company, like Exxon, is more of a global play with a $180 billion market value and operations in 50 countries. The business goes beyond traditional oil and gas with a renewables segment that dabbles in solar power and biomass. European companies often don’t keep to the consistent dividends of U.S. stocks and the exchange rate between currencies makes things move around, so expect payouts to fluctuate a bit. Still, there is only a slight variance in an otherwise consistent dividend payer.
One of the biggest clients of oil giants is Schlumberger, a Houston-based oil field company with services ranging from estimating oil field sizes with cutting-edge technology to providing rigs necessary for extraction operations. Schlumberger rises and falls on broader industry trends. When oil pricing or demand wanes, then companies are quick to cut back spending. However, revenues are on the rebound and a tailwind for oil prices hints at more business ahead for SLB — and bigger dividends, too.
Outside the integrated energy giants, there are smaller and more focused players like Oneok. OKE stock is a great way to play the midstream portion of the energy business, which is not exposed to the cost and risk of exploration, and is sheltered from commodity price volatility that can affect end sellers. Oneok helps moves natural gas around the U.S. and charges fees for that service. Income investors will take comfort in this stable model, which supports strong cash flows regardless of the price of a barrel of oil.
Based in Kansas, energy transportation player Tallgrass helps domestic oil and gas explorers move crude oil around the American West to end customers or to refineries. Like Oneok, this business as a middleman provides reliability that supports consistent dividend payments for shareholders. Geography is also a big plus for Tallgrass, as the company is close to key production areas in the Midwest and Rocky Mountains where fracking operators need its specialized infrastructure to get their products to market.
A mid-sized energy company with a market value of just $8 billion, Viper operates mainly in the Permian Basin. This unique partnership, a subsidiary of explorer Diamondback Energy (FANG), has no direct operating or capital expenditures and is instead a pass-through entity that sells fossil fuels on the market and shares some of the profits with stockholders. Obviously, when prices fall or reserves run dry, things will be unpleasant for shareholders. But with 38 million barrels of crude oil equivalents and rising pricing in 2018, the dividend is just the sweetener on top of an impressive 80 percent run for this stock since Jan. 1.
Vermilion is a $5 billion Canada-based energy production company, but don’t be fooled. This mid-sized oil and natural gas company has global ambitions, with operations in Europe and Australia. A bullish market for oil and gas has allowed VET stock to rally, but the real potential here for income investors lies in the company’s substantial expansion achieving more stable revenue streams and dividends. Vermilion pays monthly distributions, too, which allows for a more consistent cash flow for its shareholders.
Knot Offshore is an interesting twist on oil and gas investing. Like some of the midstream players, Knot is primarily an energy infrastructure and transportation play, but instead of operating a pipeline network it operates a fleet of tankers that it leases to the industry. Energy trade is increasingly global. KNOP is an integral part of this interconnected trade, and also a cost-effective solution for companies that cannot afford their own fleet or would prefer to simply scale up with rentals instead of purchasing costly tankers. Though a modest $750 million in market value, the dividends are high and the future potential seems bright for KNOP.