- Exxon Mobil (NYSE:XOM) – Oil and gas producer – 11.6x forward price-to-earnings (P/E), 4.13% dividend yield and excellent earnings prospects
- Chevron Corp (NYSE:CVX) – Global oil and gas producer – 16.2x forward P/E, 3.35%% dividend yield
- Shell PLC (NYSE:SHEL) – Global oil and gas producer – 7.9x forward P/E, 3.04% dividend yield, good earnings prospects
- Devon Energy (NYSE:DVN) – Oil and gas producer — 8.7x forward P/E, 6.62% dividend yield, earnings growth
- Marathon Oil and Gas (NYSE:MRO) – Texas and Bakken oil fields – 9.0x forward P/E, 1.08% dividend yield, strong cash flow
- Ovintiv (NYSE:OVV) Permian Basin oil and gas producer – 4.7x forward P/E, 1.49% dividend yield, strong earnings growth
- Chesapeake Energy Corp (NASDAQ:CHK) – Oil and gas producer – 8.5x forward P/E, 3.24% dividend yield, earnings growth
These seven energy stocks are cheap with good yields. This list is ranked with the highest market caps at the top. In addition, this list of energy stocks have low price-to-earnings (P/Es), generally at 12x or lower, pay a dividend and have positive earnings forecasts.
Moreover, all these stocks pay good dividends with positive earnings growth or high free cash flow (FCF) that cover the dividends. The dividend yields in these energy stocks should provide a good return for most investors.
In addition, many of these have large share buyback programs. Buybacks can act as catalysts to push these energy stocks higher.
Let’s dive in and look at these energy stocks further.
|MRO||Marathon Oil and Gas||$24.90|
|CHK||Chesapeake Energy Corp||$86.70|
Energy Stocks for Value Investors: Exxon Mobil (XOM)
Market Cap: $346.1 billion
Dividend Yield: 4.13%
So far this year, Exxon stock is up 33.5%. However, it still sports a very good dividend yield of 4.1%. It is one of the largest oil companies in the world with a $360 billion market capitalization. Its growing free cash flow (FCF) covers its dividend payments.
In addition, Exxon has a powerful new buyback program for $10 billion that it announced on Feb. 21. It also started a $9 billion cost reduction program by the end of 2023. This was announced during its Investor Day on March 2.
I discussed these three developments — its FCF, buybacks and cost reductions — in a recent article last week for InvestorPlace. I argued that investors can expect to see XOM rise as a result.
Exxon produced over $17 billion in cash flow from operations in Q4. This more than covered the $3.7 billion in dividends that the company paid out during the quarter. After two more quarters, the company is likely to raise its dividends as well.
This provides a good assurance that Exxon can keep on paying its full dividend, and I expect it will continue to do so.
Chevron Corp (CVX)
Market Cap: $318.5 billion
Dividend Yield: 3.35%
Chevron is an integrated energy and chemicals company worldwide, with both upstream (crude oil and gas exploration and production) and downstream operations. Right now the company has an annualized $5.68 dividend payment. At today’s price of $163.52 as of March 29, CVX stock has a good dividend yield of 3.35%.
Moreover, the stock is reasonably cheap here. Its forward P/E multiple is 16.2x according to the average estimates of 28 analysts and published by Yahoo! Finance.
For the three months ending Dec. 31, Chevron produced a record FCF of $6.9 billion. However, its dividend cost just $2.6 billion, well below the FCF funding source. In addition, Chevron has a stock repurchase plan that it is slowly building up.
For example, during 2021, Chevron increased its quarterly dividend per share by four percent to $1.34 and repurchased $1.4 billion of company stock.
Moreover, Chevron’s net oil-equivalent production grew in 2021 to a record 3.1 million barrels per day. It also added 1.3 billion barrels of net oil-equivalent proved reserves in 2021. This works out to 112 percent of net oil-equivalent production for the year. In other words, it more than replaced what it produced in oil and gas in terms of its reserves. That means its business is sustainable, which implies that its dividend is secure as well.
Energy Stocks for Value Investors: Shell PLC (SHEL)
Market Cap: $208.2 billion
Dividend Yield: 3.04%
Shell is an energy company with integrated gas, upstream, marketing, chemicals and products, and renewables and energy solutions segments.
Shell announced it will pay a 25 cents quarterly dividend starting in Q1 or $1.00 annually. That works out to a 1.88% dividend yield annually on its price of $53.23 as of March 25.
Moreover, its free cash flow (FCF) during Q4 was a record $10.749 billion, according to its latest report. That is more than enough to continue paying its quarterly dividends, which cost only $1.838 billion. That leaves over $8.9 billion that can be spent on buybacks and debt reduction.
Shell used to have a complicated share structure, but its shares were assimilated into a single line of shares on Jan. 29, 2022. Moreover, the company was moved to the U.K. from a dual structure of both the U.K. and the Netherlands.
One of the main reasons for this was a new buyback program. It allows for an acceleration in buybacks, as there is now a larger single pool of ordinary shares that can be bought back. Shell announced in September that it will return an additional $7 billion on top of a previously announced $2 billion buyback program in July. This was a result of an asset sale in the Permian Basin.
This will help push SHEL stock higher over the coming year.
Devon Energy (DVN)
Market Cap: $39.8 billion
Dividend Yield: 6.62%
Devon was the best performing stock in the S&P 500 last year. This was because of its super generous dividend and buyback policy. DVN stock is moving up again this year. Year-to-date (YTD) it’s up 36% as of March 25, at $59.87 per share.
Right now it pays $1 per share quarterly in fixed and variable dividends or $4.00 annually. However, the variable portion changes with 50% of its quarterly free cash flow (FCF), after deducting the fixed dividend slice. So far this gives it a 6.6% dividend yield (i.e., $4.00/$59.87).
In a recent article, I projected how the company can probably pay out a higher dividend through the year. This could raise the dividend to as high as $4.68 per share. That raises the dividend yield to 7.8%.
Moreover, the company has raised its buyback program significantly. Devon announced on Feb. 15 that it upped its buyback authorization by 60% to $1.6 billion. That works out to 4% of its $39.8 billion market cap. If it were to buy back this amount in one year that would use up 55% of the $2.9 billion in FCF it generated last year.
In addition, going forward, DVN stock trades for just 8.7x forward earnings. This makes it one of the cheapest and most profitable energy stocks in the U.S. Combined with its high yield and powerful buyback program.
Energy Stocks for Value Investors: Marathon Oil and Gas (MRO)
Market Cap: $18.2 billion
Dividend Yield: 1.08%
Marathon Oil is an attractive oil and gas play with a 1.08% dividend yield and a forward P/E below 10x. Most of its production comes from the Eagle Ford Basin in Texas and the Bakken area in North Dakota and Montana.
Value investors are attracted to it due to its low price-to-earnings (P/E) ratio, growing dividend, huge free cash flow (FCF), huge buybacks and quarterly rising dividend payments. Analysts estimate that its forward P/E now stands at 8.96x, according to a survey of earnings by Refinitiv. Analysts forecast much higher earnings this year, along with significant FCF growth.
Moreover, Marathon Oil and Gas has a robust share buyback program. It has cut the share count by 8% in over four months. Moreover, Marathon said that it bought back $772 million of its shares during Q4. That works out to an annualized rate of $3.088 billion. This represents a buyback yield of 16.5%.
Its FCF in Q4 was $898 million. That works out to an annualized rate of almost $3.6 billion. That is more than its buybacks of $3.1 billion and also the cost of its dividends of about $205 million.
As a result, expect MRO stock to move substantially higher this year, based on its ample dividend and buyback policy.
Market Cap: $13.7 billion
Dividend Yield: 1.49%
Ovintiv is a Denver-based oil and natural gas producer and marketer. Its principal assets are in the Texas Permian Basin, as well as in Anadarko in west-central Oklahoma, and Montney in northeast British Columbia and northwest Alberta.
Moreover, Ovintiv recently increased its quarterly dividend rate by 43% to 20 cents, giving it a dividend yield of 1.51% (i.e., 0.80/$52.93).
Ovintiv plans on buying back shares equal to one-quarter of its free cash flow after paying dividends, or $71 million. Since Q4, 2021, it has bought back 4.3 million shares to date since the beginning of Q4, 2021, including 3.1 million during Q4.
That works out to 1.67% of its 258 million shares outstanding. This brings its annual buyback rate to 3x times that amount or 5.0%. So, combined with its 1.45% dividend yield, this gives OVV stock a total yield of 6.45% for shareholders.
The company’s dividend yield and buybacks will push OVV stock much higher.
Energy Stocks for Value Investors: Chesapeake Energy (CHK)
Market Cap: $11.1 billion
Dividend Yield: 3.24%
Just like Devon Energy, Chesapeake Energy has a dual structure for its dividend. This includes a small base component and a variable component, built on 50% of free cash flow, after base dividends.
Moreover, Chesapeake recently said its base dividend will increase to 50 cents quarterly or $2.00 annually, giving CHK stock a base yield of 2.31% ($2.00./$86.74).
The variable dividend could be as high as $8.43 this year (a 10.3% yield). That worked out to $372 million last quarter. After deducing $52 million in base dividend payments, and subtracting 50%, the variable dividend was $160 million. With 120 million shares outstanding the variable quarterly dividend worked out to $1.33 per share or $5.32 annually.
Theoretically, that brings the total annualized dividend to $7.32, after including the new $2.00 based dividend. That would give the stock an annual yield of 8.44% (i.e., $7.32/$86.74).
However, as I recently projected, the dividend yield could actually work to a higher number, assuming oil prices stay high for the next three quarters as they have in Q1.
On top of this, Chesapeake announced a $1 billion stock and warrant repurchase program to be executed by year-end 2023. Along with its cheap forward P/E of just 8.48x, as well as its 8.44% yield, this should help push CHK stock higher this year.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.