The energy market went through a bit of a downturn. Natural gas prices crashed earlier this year amid unseasonably mild weather. And crude slipped to 52-week lows as demand wavered and the Biden Administration delayed plans to refill the country’s strategic reserve. However, oil stocks are turning upward again now, along with the price of oil which recently topped $80/barrel once again.
Previously, traders had worried that the Federal Reserve’s rate hikes would send the economy into a recession. But with hopes for a soft landing on the rise, it’s time to invest in oil stocks again.
Assuming the economy hangs in there, oil stands to be a big beneficiary. Since the oil market crashed in 2014, there has been chronic underinvestment in the industry. That makes these must-buy oil stocks for August attractive, as these firms have huge reserves, strong profits and pay generous dividends to their shareholders.
Canadian Natural Resources (CNQ)
Starting off the best oil stocks to buy, there’s Canadian Natural Resources (NYSE:CNQ). The firm is a long-running Canadian energy giant.
The company’s bread and butter is in the Alberta oil sands. Oil sands are unique in that they yield oil by processing hard rock rather than coming from oil wells. That makes oil sand production closer to mining.
Once an oil sands mine is running, it can continue for many years — often decades — without seeing a drop-off in production. That starkly contrasts fracking, where production plunges within a couple of years of inaugurating production.
In a world where politicians and environmentalists are placing increasing hurdles to new oil development, Canadian Natural’s long-lived existing assets take on new importance. The company also treats its shareholders well; it offers a 4.42% dividend yield in addition to its large share buyback program.
BP (BP)
For quite a while, many oil stock investors understandably shied away from BP (NYSE:BP).
The firm oversaw the Deepwater Horizon accident, which caused significant environmental harm and was a huge blow to BP’s reputation. BP also appeared to lose its focus. At one point, it leaned heavily into its “Beyond Petroleum” marketing but profits from its outsized renewable energy investments haven’t managed to live up to expectations.
After years of underperformance, BP’s management adjusted its strategy earlier this year. The company cut its investments in renewables such as hydrogen and offshore wind while deciding to focus more of its energy on core oil and gas operations for a while longer.
BP stock has dramatically underperformed many of its international integrated oil peers. With the firm’s shift back toward more profitable oil and gas assets, however, its valuation could be set to soar. For now, shares are a bargain at seven times forward earnings while offering a 4.28% dividend yield.
Ecopetrol (EC)
Ecopetrol (NYSE:EC) is the state-operated oil company of the Republic of Colombia. The Colombian government controls 88% of the firm, with outside shareholders owning the other 12%.
That has created a favorable dynamic for shareholders. The Colombian government has historically encouraged Ecopetrol to pay high dividends that go, in large part, to fund its national treasury. EC stockholders, however, get to enjoy those bountiful yields as well.
In 2023, for example, each Ecopetrol ADR will pay a total of 11,860 Colombian pesos to its shareholders in dividends in three equal portions. When that dividend was announced, 11,860 Colombian pesos were worth about $2.50. Thanks to the recent devaluation in the dollar, 11,860 pesos are now worth $2.91. With EC stock over $11, the company is currently offering a mouth-watering 18% dividend yield.
While the company’s dividend is variable and based on annual earnings, the future should be bright as well. Ecopetrol is a low-cost oil producer with the dominant market position in Colombia. It also controls 100% of that nation’s refining capacity, along with a ton of midstream, electric grid, toll roads, and renewable energy assets. All this makes EC stock a great oil pick for investors that value a high dividend yield.
On the date of publication, Ian Bezek held a long position in EC, CNQ and BP stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
