When it comes to energy stocks, the various smaller shale players have gotten most of investors’ attention these days. Share prices for these smaller E&P outfits have surged as we’ve continued to frack ourselves silly and unearth a virtual ocean of crude oil & natural gas.
But there can be something said for buying the boring old blue chips in the oil patch — namely a hefty dose of dividends.
The various integrated majors and other blue-chip energy stocks continue to churn out record production and cash flows each quarter. Those cash flows are making their way back to investor’s pockets via big dividends and share buybacks.
And considering their size and scale, the various big blue chip energy stocks should be able to plow through the current low oil price environment with relative ease. Add in the fact that the blue chip energy stocks can currently be had for cheaper metrics and you a recipe for long-term success.
For investors looking at adding some energy stocks to their portfolio, you can’t overlook the giants in the sector. Here are five of the best blue-chip energy stocks to buy for their dividends.
Energy Stocks To Buy — Exxon Mobil (XOM)
Dividend Yield: 2.9%
Any list of blue-chip energy stocks has to include the king of them all — Exxon Mobil (XOM). And it’s easy to see why XOM stock is the king.
As one of the world’s largest oil companies, XOM remains one of the best allocators of capital to new projects. That capex wisdom includes going all-in on some massive new fields all across the globe. These moves into several oil-producing shales and offshore projects have turned the tide, with more and more of these projects churning out oil & other natural gas liquids (NGLs). Essentially, the firm’s “oil cut” has been rising.
That rising oil cut has helped improve margins over the last few quarters. Exxon’s upstream margins are currently at 31%, compared to a peer average of 23%. This means XOM is making significantly more money per barrel than its rival energy stocks.
Ultimately, that helps Exxon churn out more cash back to investors. XOM stock continues to raise its dividend year in and year out, while its buyback program remains one of the sector’s largest. XOM stock currently yields a healthy 2.9%.
Energy Stocks To Buy — ConocoPhillips (COP)
Dividend Yield: 4.1%
Thanks to the spinoff of its refining & chemicals unit as Phillips 66 (PSX), former integrated energy stock ConocoPhillips (COP) has become a shale powerhouse tucked within a stable blue chip. Here’s what’s fueling COP stock:
COP has continued to focus on North America’s richest shale formations — like the Eagle Ford, Bakken and Permian Basin — and has begun selling off various non-core international assets. Overall, ConocoPhillips managed to sell roughly $12 billion worth of assets back in 2013.
By plowing those profits back into its on- and offshore holdings here at home, Conoco has continued to support its hefty cash flows with higher liquids production. Meanwhile, the international assets it does have seem to firing on all cylinders — as demonstrated by the recent huge find in Senegal.
Given its laser-like focus on shale and oil production, COP estimates that its production will increase 3% to 5% next year. The vast bulk of that production will higher-margin oil.
Ultimately, that production will keep the dividend tap open for ConocoPhilips. Analysts estimate that COP stock will raise its payout by 5% in 2015 to $3.08 per share.
Energy Stocks To Buy — Total S.A. (TOT)
Dividend Yield: 5.4%
Let’s not forget that some of the blue chip energy stocks with the biggest dividends lie outside of the U.S. borders. Case in point, French super major Total S.A. (TOT) and its whopping 5.4% dividend yield.
While TOT stock is still reeling from the recent accidental death of its “larger-than-life” CEO Christophe de Margerie, the longer-term picture at Total is starting to look quite rosy. That’s because the company is getting lean & mean.
After several high-profile, high-reward (read: high-risk) projects have failed to produce meaningful results, TOT has begun a transformation into a focused energy stock player. That transformation has led to billions of asset sales and project closures. Everything from natural gas fields in Azerbaijan to liquefied petroleum gas distribution in France have been cut from the company’s asset base. Meanwhile, TOT stock is plowing extra capex into more “sure-thing” projects.
Ultimately, that refocusing will help curtail production declines and boost profits … which will support TOT stock’s sector-high 5.4% dividend yield.
Energy Stocks To Buy — Marathon Oil Corporation (MRO)
Dividend Yield: 2.6%
Just like ConocoPhillips, Marathon Oil (MRO) separated from its refining unit and hasn’t looked back.
Perhaps the only thing holding back MRO stock has been poor results from its international assets. As oil prices have slid and the cost of production in these international fields has risen, MRO missed its recent earnings estimates by a penny per share.
Backing out these international assets — which are becoming less & less of MRO’s main focus anyway — things look quite delicious for Marathon. In its latest quarterly report, MRO announced production of 250,000 barrels of oil-equivalent per day (BOE/d). That’s up from 200,000 BOE/d in the third quarter of 2013. The increase was driven by rising output from the U.S. shale plays like the Bakken and Eagle Ford.
Even better: Marathon expects that its production to be around 275,000 BOE/d in the fourth quarter.
That production should help the firm over shadow any poor results from its international segment due to lower oil prices. More importantly, it should help Marathon increase its dividend even further at the end of the year. MRO stock currently yields 2.6% — which is still pretty generous, even among energy stocks.
Energy Stocks To Buy — Valero Energy (VLO)
Dividend Yield: 2.2%
While Valero Energy (VLO) isn’t a producer of crude oil and natural gas, it’s still one of the bluest blue-chip energy stocks out there. As America’s largest pure refiner, VLO meets the requirement of a vast asset base. That asset base — along with access to cheap WTI benchmarked crude — has allowed VLO to have some of the largest crack spreads and margins around.
The result? VLO stock has doubled the performance of the S&P 500 over the last three years.
And those margins continue to drive earnings at this blue chip. VLO stock just reported its fifth consecutive earnings beat with its stellar third-quarter 2014 results. For the quarter, Valero made $2 per share in profits, crushing analyst estimates of $1.57 and the 57 cents per share it made a year ago in the same quarter.
Those kind of earnings beats and profits have made VLO a dividend champion as well. During the quarter, Valero bought 3 million shares of its own stock and declared a 27.5-cent dividend. That puts VLO shares at a current yield of 2.2%. That’s actually pretty good considering that just a few years ahead, the refining sector wasn’t even paying 1% on average.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.