The West Texas Intermediate (WTI) barrel fell below $78 on Nov. 7, its lowest price since July. As a result, energy stocks continue to take a hit. The Energy Select Sector SPDR Fund (NYSEARCA:XLE) is down more than 6% over the past year and up by only 21% over the past five years, less than half the gains of the S&P 500 overall.
The global economy is slowing down, which will reduce the demand for oil across the globe. However, there are signs that the oil selloff is overdone. Saudi Arabia and Russia next meet at the end of November to discuss extending production cuts into 2024; they may.
That said, the near-term potential for gains in the energy market seems unlikely. However, if you’re into income, we’ve got a trio of three energy stocks for income to consider for your portfolio.
My energy income stocks will be selected from the Ninepoint Partners Energy Income Fund, a Canadian mutual fund and ETF managed by energy specialist Eric Nuttal. The fund has a target distribution of 7% on the net asset value per unit.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) is down nearly 24% year-to-date, resulting in a dividend yield of 11.3%.
The Oklahoma City-based company reported its Q3 2023 earnings on Nov. 7. Its adjusted earnings per share were $1.65, nine cents higher than analyst expectations. However, its revenue in the quarter was $3.84 billion, $190 million less than the consensus estimate.
A big highlight from the quarter included a 10% increase in production to 665,000 barrels of oil equivalent per day (boepd), helping to generate $843 million of free cash flow, double what it was a year ago.
The company expects free cash flow to grow 18.5% in 2024 to $3.2 billion. Its WTI breakeven is a $40 barrel. Devon will return 70% of its free cash flow to shareholders for dividends and share repurchases.
Because it’s generating so much cash, DVN has a fixed and variable dividend program in place. In 2023, it increased its fixed quarterly dividend by 11% to $0.20. Its annual rate of $0.80 yields 1.8%. Its variable dividend pays out up to 50% of its excess free cash. The December payment is $0.57 for a total quarterly payout of $0.77.
Chord Energy (CHRD)
Chord Energy (NASDAQ:CHRD) is up nearly 22% year-to-date with a dividend yield of 7.4%.
The Houston-based oil exploration and production company reported Q3 2023 results on Nov. 1. Five highlights in the quarter included production of 176,000 boepd, adjusted free cash flow of $207.4 million, return of 75% of its adjusted free cash flow to shareholders, the opening of 45 wells, and an increase in its share repurchases by 68% sequentially from the second quarter.
As for dividends, it will pay a base-and-variable dividend at the end of November of $2.50 ($1.25 base and $1.25 variable). Regarding its latest dividend, it pays out 75% of its free cash flow when its leverage is 0.5x or less. At the end of the third quarter, it was 0.1x.
Chord has the largest acreage in North Dakota’s Williston Basin. At its current pace of production, it has 10 years of reserves available. It expects its 2023 free cash flow to be $800 million, returning 75% to shareholders.
Diamondback Energy (FANG)
Diamondback Energy (NASDAQ:FANG) is up nearly 19% year-to-date with a dividend yield of 6.6%.
Given the recent acquisitions by Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) in recent weeks, investors have speculated whether Diamondback would be a buyer, not a target in the ongoing consolidation movement in the U.S. oil and gas industry. According to Reuters:
“‘We expect Diamondback to remain a consolidator in the future,’ Chief Executive Travis Stice wrote in a letter to stockholders. ‘We believe in the pure-play independent E&P business model, and know we can compete for investor capital in a consolidated space,’ he added.”
At the same time it commented on industry consolidation, the company raised its 2023 production to 447,000 boepd, up from 445,000 previously.
In Diamondback’s Q3 2023 letter to shareholders, it plans to pay a variable dividend of $0.84 and a variable dividend of $2.53 for a total of $3.37 a share. It said that at some point, it will stop the variable dividend and allocate that cash to share repurchases, where it looks to generate a low-teens rate of return on its investment.
You don’t often hear about a share repurchase plan that’s so precisely planned.
On the date of publication, Will Ashworth did not have (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.
