A rebound in oil prices — and oil stocks — presents an unexpected opportunity for investors to collect some healthy dividend checks while fundamentals continue to improve.
On Monday, oil prices rose again after three straight weeks of increases to near three-year highs on growing fuel demand and tight supplies due to the hurricanes in the Gulf of Mexico.
Despite the rebound, some big dividend-doling energy stocks continue to offer yields in excess of 5%.
It might be worth nailing them down now before oil prices really take off — possibly with some of your spare change.
While many big energy companies are steadily moving towards renewables, Exxon is committed to oil and gas, providing investors with a relatively pure way to jump into the space.
Although Exxon isn’t likely to win favor from socially and environmentally conscious investors anytime soon, there’s a good chance that management’s commitment to fossil fuels proves to be the less risky approach for shareholders.
In the most recent quarter, for instance, Exxon earned $4.7 billion in profits on revenue of $67.7 billion thanks to significant recovery in demand. More importantly, the company delivered operating cash flow of $9.7 billion, easily funding several of management’s shareholder-friendly actions.
“We’re realizing significant benefits from an improved cost structure, solid operating performance and low-cost-of-supply investments that, together, are generating attractive returns and strong cash flow to fund our capital program, pay the dividend and reduce debt,” said Chairman and CEO Darren Woods.
With the stock still off 11% from its 52-week highs and offering an especially fat dividend yield of 6.0%, it might be time to ride that operating momentum with some extra cash.
Chevron is another oil-leveraged behemoth that income investors might want to consider.
While the company hasn’t invested much capital in renewable sources of energy, Chevron’s significant position in the attractive Permian Basin and impressive free cash flow generation should give investors plenty of reasons to be bullish about.
In the most recent quarter, Chevron produced earnings of $3.1 billion on revenue of $36 billion. Meanwhile, free cash flow clocked in at multiyear high of $5.2 billion.
Management cited improved market conditions and merger synergies for the strong results.
“Our free cash flow was the highest in two years due to solid operational and financial performance and lower capital spending,” Chairman and CEO Mike Wirth said. “We will resume share repurchases in the third quarter at an expected rate of $2-3 billion per year.”
Chevron shares are also off 11% from their 52-week highs and currently provide a dividend yield of 5.3%, giving dividend value investors something to think about.
To be sure, Chevron trades at more than $100 per share. But you can get a piece of Chevron using a popular stock trading app that allows you to buy fractions of shares with as much money as you’re willing to spend.
For investors looking for a big energy stock that’s a bit more on the progressive side, BP might be the answer.
Management’s plans to reduce hydrocarbon production by 25% by 2025 and 40% by 2030 is easily the most aggressive transition toward renewables among the major oil companies. That could put BP in a stronger competitive position than its industry peers over time.
And the best part? BP’s swift move away from oil investments doesn’t seem to be impacting its near-term results too negatively.
In the most recent quarter, the company earned $2.8 billion while generating $5.4 billion in operating cash flow. BP even increased the dividend 4% while starting a share buyback of $1.4 billion with surplus cash flow from the first half.
“We are a year into executing bp's strategy to become an integrated energy company and are making good progress — delivering another quarter of strong performance while investing for the future in a disciplined way,” said CEO Bernard Looney.
BP shares down 8% from their 52-week highs and offer a dividend yield of 5.0%.
How to buy these big oil stocks
You don’t need to be an oil tycoon to start investing in these big energy stocks.
If you’re working with a smaller budget, you may want to use an investing app that allows you to buy “slices” of shares for large oil companies — especially one that comes with no fees or commissions.
And if you're still on the fence about jumping in, some investing apps will even give you a free share of Exxon, Chevron, or BP just for signing up.
Another low-budget option is using an app that allows you to invest with just your “spare change,”.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.