- Soaring crude and natural gas prices defy forecasts of weakening global energy demand, spotlighting oil stocks that are solid choices for income-seeking investors.
- Exxon Mobil (XOM) — Exxon Mobil maintained its dividend even in 2020, proving to be an unshakable income stock.
- Chevron (CVX) — Chevron is a giant blue chip American oil and gas company with key offshore assets in the Eastern Mediterranean.
- BP (BP) — BP’s moves into renewable energy offer some diversification to its core oil and gas business.
- Enbridge (ENB) — Canada’s pipeline giant delivers a tasty dividend yield as well.
- Suncor (SU) — The giant integrated oil sands leader has several catalysts for 2022.
- Valero (VLO) — Refiners are enjoying unusually robust profitability at the moment, leading to a great outlook for dividends.
- The Williams Companies (WMB) — Diversified pipeline company is a great income play.
The stock market continues to be a wild ride. For investors in the winners of 2020 and 2021 such as tech stocks and then reopening names, it’s been a difficult year so far. Traders are giving up on those old favorites and moving their capital elsewhere. One of these attractive alternatives is oil stocks.
Despite threats to Russian oil and gas supplies, surging inflation around the globe and China Covid lockdowns throttling the world’s second-largest economy, Brent crude and its West Texas Intermediate partner ride volatility yet remain above $100 a barrel. The energy industry has roared back to life as demand for oil, gas and refined products has surged.
Meanwhile, supply remains constrained due to both a lack of new investments in the sector and political/social pressures against new fossil fuel development. Energy shortages are becoming a major headache for investors. However, you can turn that worry into solid income with these seven oil stocks.
|XOM||Exxon Mobil Corporation||$90.95|
|SU||Suncor Energy Inc.||$37.51|
|VLO||Valero Energy Corporation||$127.78|
|WMB||The Williams Companies, Inc.||$35.44|
Exxon Mobil (XOM)
Exxon Mobil Corporation (NYSE:XOM) is the largest American oil and gas company by market capitalization. It’s also, arguably, the most trustworthy of the major integrated firms for dividend investors.
Unlike many of its rivals, Exxon Mobil held strong and maintained its dividend during the brutal industry downturn in 2015-2020. Even when oil prices turned negative and XOM stock fell to the $30s, management resisted analysts’ calls to slash the dividend.
With profits surging once again, Exxon Mobil has returned to increasing its dividend while also paying down debt. Meanwhile, the company’s investments in new production, such as its offshore field in the nation of Guyana, have been particularly fruitful.
All this leads to Exxon Mobil stock still trading at just nine times earnings even after the big run-up in its share price over the past year. XOM stock also offers a 4.0% dividend yield. It’s not the most thrilling option in energy stocks, but it allows income investors to sleep soundly at night regardless of broader economic conditions.
Chevron Corporation (NYSE:CVX) is another American oil giant. And, like Exxon Mobil, it hasn’t given up entirely on new fossil fuel production either. It has a power position in the key Permian Basin region, and it has more irons in the fire in Mexico, Brazil and Kazakhstan among overseas areas.
CVX stock isn’t just a traditional fossil fuel play, however. It has invested heavily in cleaner production methods such as carbon capture along with entirely renewable/green investments.
Chevron’s massive balance sheet and array of assets makes it a highly-secure way to play the energy industry. It’s not the highest-yielding option by any means, with the dividend yield currently at just 3.4% but the yield is very secure.
BP p.l.c. (NYSE:BP) is an interesting firm among the oil stocks. Unlike many peers, BP has aggressively moved to become more friendly along the environmental, social, and governance (ESG) fronts. Among other things, it has promised to curtail hydrocarbon production 25% by 2025 and 40% by 2030. It is also reducing its oil refining operations, while investing heavily in renewable energy or cleaner options such as liquified natural gas (LNG).
BP stock has underperformed many oil peers over the past year. Given the surge in energy prices, BP’s focus on green alternatives isn’t being rewarded at the moment. However, BP still has a huge legacy oil and gas business that is producing record profits.
So much so, in fact, that shares are now trading for less than five times forward earnings. BP stock also offers an attractive 4.4% dividend yield. At some point, BP’s focus on more diverse energy sources will come back into focus, giving the stock a boost. And in the meantime, shares are a huge value, both in absolute terms and relative to its oil and gas peers.
Canadian pipeline giant Enbridge Inc. (NYSE:ENB) controls one of North America’s largest energy infrastructure businesses. Its assets include 17,809 miles of crude oil pipelines, 76,546 miles of natural gas pipe, and 281 billion cubic feet (Bcf) of net gas storage capacity among other holdings.
Enbridge has also gone heavily into renewable and cleaner energy options and operates or is currently building 2,172 MW of net energy production, which is enough to power 962,000 homes.
This should give a sense of the scope and scale of Enbridge’s business. It’s a great all-in-one sort of holding to get exposure to a vast portion of the North America’s energy production, transportation, and distribution needs. Despite the downturn in the energy industry in the late 2010s, Enbridge managed to increase its dividend each and every year dating back to 2014. ENB stock yields a compelling 6.2% right now.
Suncor Energy Inc. (NYSE:SU) is one of Canada’s largest oil companies. It has made its fortune in the oil sands. Unlike conventional oil production, oil sands are more akin to mining, where tar-filled rocks are extracted and then processed to remove petroleum. These oil sands projects have incredible costs to set-up. But once they are running, maintenance costs are relatively low and the sands have massive project lifespans in comparison to oil wells or fracking.
These make for highly profitable assets in the current marketplace. Investors have been afraid to fund new oil production given the market volatility and rising backlash against fossil fuel production. This puts oil sands owners in the catbird seat, since they have properties that can produce out into the 2040s and 2050s with already-existing infrastructure.
SU stock has become doubly interesting in 2022 as activist investors are looking to shake up the company. This could result in favorable outcomes for investors; in fact, Suncor already hiked its dividend 12% recently perhaps in part to try to fend off the critics. Shares yield 4%.
Valero Energy Corporation is one of America’s leading refining companies. Refining operates to a different beat than the rest of the oil and gas industry. Refiners earn their profits based not on the price of oil itself, but rather the crack spread. The crack spread is the difference between the cost of a barrel of oil and the value of its refined products such as gasoline, asphalt, jet fuel, and so on.
For many years, the crack spread tended to be low. However, the lack of new refineries built in the U.S. combined with the shale boom led to a marked improvement in supply/demand dynamics for refiners such as Valero. Now throw in supply chain headaches and the war in Ukraine, and crack spreads have soared to near all-time highs.
This helps explain why gas prices keep moving higher even as the price of crude oil has slid a bit in recent weeks. This fattening profit spread directly benefits Valero. VLO stock currently trades at 10 times this year’s estimated earnings and the stock pays a more than 3% dividend yield. Don’t be surprised if earnings and the dividend rise in 2022 as the company operates in a period of record profit margins for the refining industry.
The Williams Companies (WMB)
The Williams Companies, Inc. (NYSE:WMB) is one of America’s largest midstream energy companies. Traditionally, the company has been known for its pipelines. That remains a core business, with gas pipelines protected by regulatory rates making up close to half of earnings. That’s the side of the business that people know as, essentially, a toll road asset that profits from energy transportation.
However, Williams has mixed in more exciting assets on top of the pipeline base.
Williams is growing aggressively in new transportation projects for industrial gas use, along with businesses tied to LNG exports. With the European natural gas market going to the stratosphere recently amid a massive shortage, these LNG investments could be highly lucrative.
Williams has been quite stable; it was able to increase its dividends for the past four consecutive years despite the collapse in energy prices in 2020. WMB stock currently yields 4.9%.
On the date of publication, Ian Bezek held a long position in XOM, BP, ENB, and SU stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.