Crude oil’s plunge has continued unchecked thanks to firm supplies and weak demand. Since last summer’s peak, black gold has plunged about 60% to current prices around $45 per barrel.
It goes without saying that oil stocks have moved in a similar fashion. The broad sector proxy — the Energy SPDR (XLE) — is off by about a third over the past 52 weeks.
That drop in price obviously would appeal to those looking for long-term value stocks to buy, but another group of investors should be licking their lips: income hunters.
Many oil stocks — including a number of high-quality names — are increasingly attractive from a dividend perspective thanks to those price drops. The XLE itself sports a 30-day SEC yield of 3.2%, and that’s after having yielded in the 1.5% to 1.8% range within the past couple of years. That yield certainly beats the pants off 10-year Treasuries and puts oil stocks on par with many more traditional high-yielding sectors that don’t have the same potential for rebound gains.
Today, we’ll look at a number of beaten-down oil stocks to buy for their suddenly much more appealing dividends.
Beaten-Down Oil Stocks to Buy: Exxon Mobil (XOM)
XOM Dividend Yield: 4%
Any list of dividend-paying oil stocks is almost required to include major integrated oil firm Exxon Mobil (XOM).
But whereas Exxon once was very attractive for its consistent dividend, now the country’s largest energy stock looks good for its sheer yield, too.
That’s what a 30% decline in your share price will do.
So, what’s to like about XOM stock? To start with, Exxon has an enviable asset base of energy holdings. Thanks to its size, Exxon is one of the most efficient producers of energy, which will benefit XOM when oil prices eventually rebound. On the flip side, Exxon’s huge refining and chemicals businesses have been able to feast on the lower feedstock costs thanks to oil and natural gases continued collapse. This downstream sector has insulated Exxon from some of the worst damage facing its strictly oil-producing peers.
As a whole, these businesses allow Exxon to be a cash-rich, dividend-paying machine. Even amid the drop in oil prices, XOM still managed to up its dividend payout by 6% earlier this year. That’s good for the company’s 32nd consecutive year of payout hikes — a period of time that includes roughly six oil “crashes.”
And if you want a little extra feeling of security, remember that Exxon Mobil is one of just a few U.S. companies with a AAA credit rating.
Exxon trades at 13 times earnings, so when you factor that in with everything else we’ve mentioned, XOM looks like one heck of a bargain among oil stocks.
Beaten-Down Oil Stocks to Buy: Occidental Petroleum (OXY)
OXY Dividend Yield: 4.5%
When it comes to oil stocks, Occidental Petroleum (OXY) continues to be one of the most ignored plays out there. But that might make it one of the best stocks to buy for both value hounds and income seekers.
OXY basically provides investors the best of both worlds. Not only do you have Occidental’s world-class downstream businesses that churn out cash flows and eat up low oil prices, you also have access to some of America’s hottest shale fields and leader in enhanced oil recovery.
Problem is, investors aren’t exactly sure how to value OXY. The shale holdings give off the perception that Occidental isn’t as “safe” as the integrated oil stocks. The refining assets give off the airs that Occidental is too slow-moving when compared to other independents.
The truth is that OXY provides the best of both worlds. You get insane free cash flows from its OxyChem business, while production growth continues to surge in the Permian.
Not to mention, OXY’s investment-grade credit rating, $2.75 billion in cash and more than $1.4 billion worth of Plains GP Holdings (PAGP) units on its balance sheet.
Beaten-Down Oil Stocks to Buy: Murphy Oil (MUR)
MUR Dividend Yield: 5.4%
They say that the easiest way to double your yield is to lose half your share value — and that’s exactly what has happened to Murphy Oil (MUR). MUR shares have actually been more than halved over the past year and change, by 60%, but that has sent its dividend soaring above the 5% mark.
Murphy Oil spun out its refining segment, Murphy USA (MUSA), just as oil was basically peaking, leaving MUR as a strictly production outfit at precisely the wrong time. Murphy’s assets aren’t exactly low-cost, either, and as such, investors have abandoned Murphy Oil on fears that the firm is going to get into real trouble.
But that simply won’t happen.
For one thing, MUR is actually doing better than a lot of analysts have predicted. A ton of its production does come from stable assets that have been pumping crude oil for years. Drilling is expensive, but collecting oil after you’ve first tapped a well a decade ago isn’t so bad.
Secondly, the areas in which MUR has been plowing its reduced capex spending are super-cheap and super-efficient — think the Eagle Ford. That should still help drive profits in the future when oil prices rebound.
For now, Murphy is maintaining its dividend. For investors looking to take a chance, MUR is among some exciting oil stocks to buy.
Beaten-Down Oil Stocks to Buy: Kinder Morgan (KMI)
KMI Dividend Yield: 6.6%
Unlike many of the oil stocks on this list, Kinder Morgan (KMI) isn’t a producer of energy, but a mover of that energy. Nonetheless, lower crude oil, natural gas and coal prices have hurt the firm. KMI shares are off some 35% from their April peak.
Of course, now one of the country’s premier energy infrastructure companies is yielding 6.6%, which is pretty compelling.
Supporting that hefty dividend are the cash flows from 84,000 miles worth of pipelines and gathering systems, plus more than 165 terminals. It owns tanker ships, processing equipment and a whole host of other midstream assets.
Basically, if it’s an energy commodity, KMI moves it.
What’s great about KMI’s huge asset base is that the vast bulk of it acts like a toll taker, just collecting fees from producers, which in theory means that Kinder Morgan should be well-insulated from falling oil prices, though reality shows that’s not quite the case.
Still, Kinder raised its dividend yet again this year, and said it still planned on paying out its 2015 target of $2 per share. So if management is worried, it’s not showing its hand.
Consider the massive drop in KMI stock as a buying opportunity. Kinder will continue to pad its dividend well into the future, if its huge backlog of new instantly accretive projects is any indication.
In fact, CEO and founder Richard Kinder has pretty much said he plans to increase the dividend 10% annually through 2020.
Beaten-Down Oil Stocks to Buy: Apache (APA)
APA Dividend Yield: 2.5%
While a 2.5% yield may not get investors’ blood pumping, for traditionally low-yielding oil stocks like Apache (APA), it’s actually huge.
Historically, Apache made its mark as an oil leader by focusing on North American assets in the Gulf of Mexico, buying older wells and squeezing out every last drop. Of course, APA also was a bloated independent player on a global stage.
Well, that’s history.
Apache has undergone one of the largest transformations in the entire sector, making $17 billion worth in acquisitions, but also shedding roughly $17 billion in assets including those in the Gulf of Mexico, fields in Egypt, Canadian operations and even exposure to LNG export terminals. That shift has made the new Apache a lean, mean machine primarily focused on the low-cost Permian and other onshore U.S. plays.
That removes plenty of risks from APA’s holdings while boosting its overall liquids production. And since the Permian is one of the lowest-cost places to drill, APA continues to see decent margins from its wells.
Those margins have helped strengthen Apache’s balance sheet, offering some protection to its dividend payout.
As of this writing, Aaron Levitt was long KMI.