Close to my home in Chapel Hill, North Carolina, is the factory site for VinFast Auto (NASDAQ: VFS), the Vietnamese electric vehicle company. Taxpayer funding is involved, so the media covers VinFast well. A recent headline in the Charlotte Observer read, “VinFast pushes its NC plant opening to 2028, four years later than first planned.” But if former President Donald Trump is elected again, no one in Texas will likely worry about oil companies having production problems.
A major part of Trump’s economic agenda is “energy dominance.” This is fossil fuels, not alternative energy. As Trump said in his acceptance speech at the Republican National Convention, “I will end the electric vehicle mandate on day one, saving the auto industry from complete obliteration; and saving U.S. customers thousands and thousands of dollars per car.” Oil production is obviously vital to Trump campaign platform.
It’s a basic lesson for American officeholders: when the price of oil is lower, the chances of re-election are higher. The first OPEC embargo was in 1973, quadrupling the price of oil. President Gerald Ford lost in 1976. The second OPEC embargo doubled oil’s price in 1979, and President Jimmy Carter lost in 1980. President Ronald Reagan crushed OPEC with his policy of “produce,” winning re-election in 1984. His vice president, Texas oilman George H.W. Bush, won in 1988.
When the price of oil is low, inflation is muted. Dollars are not exported to pay for energy, but to create jobs in America. Voters feel more in control of their destiny when energy prices are not skyrocketing. When voters are not bullish about the future, incumbents lose.
Trump realizes this and as tax attorney Davide Mangefrida told InvestorPlace, “Trump has indicated to oil company executives that if he is re-elected, he will retain $35 billion in domestic tax subsidies for oil and gas companies.” These oil stocks should benefit from another Trump administration.
Chevron (CVX)
Expect Chevron (NYSE: CVX) to leave California for Texas. That should help the stock price. But shareholders have little to complain about as Chevron is near its year-high, up 10% for the last six months.
The second-largest U.S. oil company, Chevron, is a favorite of institutional investors such as mutual funds. Almost three-quarters of the stock is owned by these professional investors, which is bullish. Another plus is a low short float: few expect the price to fall. Chevron’s financials are attractive, with little debt, a double-digit profit margin, and earnings projected to rise in double digits.
Big Oil often means big dividends. Chevron is a Dividend Aristocrat, a company with a history of increasing its dividend annually for more than 25 years. Not only does Chevron raise its dividend, the yield is over 4%, more than three times the S&P 500 average of 1.3%.
Exxon Mobil (XOM)
Trump’s first secretary of state was former Exxon Mobil (NYSE:XOM) CEO Rex Tillerson. It did not turn out well as he tried to undermine Trump; and was dumped. But count on Exxon doing well if Trump returns to office.
Exxon Mobil is the biggest oil company in America. Like Chevron, its financials are stellar: low debt, a double-digit profit margin, and strong support from institutional investors. The short float for Exxon is under 1%, which is bullish.
Also a Dividend Aristocrat, Exxon has a yield of 3.3%. With a payout ratio of about 40%, there is cash for increases. This dividend framework attracts investors looking for rising income.
Occidental Petroleum (OXY)
Expect to see Occidental Petroleum (NYSE:OXY) increase its dividend. Its present yield is right around that for the S&P 500. The fourth-largest oil company should have a bigger dividend like Exxon and Chevron’s. Legendary investor Warren Buffett is also a major shareholder, and he expects his investments to pay him to be an owner.
There is much for Buffett to like about Occidental, which is why he increased his holdings by Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), the conglomerate he founded and heads. It has stellar margins, and earnings are expected to soar next year thanks to bountiful reserves. Institutional investors own more than 80% of Occidental, so there is strong support from the smart money crowd.
Occidental’s dividend yield of 1.4% needs improvement, but the payout ratio is very low. When earnings increase, expect the dividend to increase and the debt to decrease. Income is important to many seeking oil stocks to buy, so if Occidental increases its dividend, expect more shares to be acquired.
On the date of publication, Jonathan Yates 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
