3 best oil stocks to buy in November
Oil prices have climbed more than 67% this year, including a double-digit increase in October. As crude prices hit their recent highs, they are above $ 80 a barrel. And oil stocks are profiting since most have started their businesses on oil prices below $ 50 this year.
Three successful oil companies in today’s market are ConocoPhillips (NYSE: COP), Devon Energy (NYSE: DVN), and Diamondback Energy (NASDAQ: FANG). Here’s why that sets them apart as the top oil stocks to buy this month.
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Add fuel to an already overpowered plan
ConocoPhillips recently reported strong third quarter results. The oil giant generated $ 4.1 billion in operating cash during the third quarter. After covering its $ 1.3 billion in capital expenditures, ConocoPhillips generated $ 2.8 billion in free cash flow.
The company continues to return most of its excess cash flow to its shareholders. To date, it has returned $ 4 billion to investors, of which $ 2.2 billion share buybacks and $ 1.8 billion in dividends. This allows it to return $ 6 billion in cash to investors this year. It recently took another step towards achieving this goal by increasing its dividend by 7%.
ConocoPhillips ended the quarter with $ 10.9 billion in cash and short-term investments. He expects to use most of that money to buy Shell‘s (NYSE: RDS.A)(NYSE: RDS.B) active in the Permian basin. He has agreed to pay $ 9.5 billion in cash for this business, which will improve its ability to generate free cash flow. ConocoPhillips now estimates that it can generate a cumulative free cash flow of $ 80 billion over the next decade, assuming oil averages $ 50 a barrel, $ 10 billion more than its previous forecasts. Meanwhile, it has a lot of advantages to the rising price of oil. Over the next decade, every $ 10 change in oil prices can increase its cash flow by $ 35 billion. This ability to profit from rising crude prices makes ConocoPhillips a leading oil stock.
Pay immediate dividends
Devon Energy is also benefiting from rising crude prices. In the third quarter, the company generated $ 1.6 billion in operating cash flow, 46% more than the previous quarter. Meanwhile, its free cash flow has increased eightfold from the end of last year, reaching $ 1.1 billion in the third quarter.
Devon returns most of this money to shareholders. He launched a more variable fixed dividend strategy earlier this year. Its booming cash flow enabled the company to increase its total dividend payouts by 71% in the third quarter. In addition, Devon recently launched a billion dollar share buyback program, large enough to remove 4% of its current number of shares. The company expects its free cash flow to continue growing in the coming quarters as it benefits from cost reductions and the roll-off of old oil hedges. This should allow the company to continue returning much of its growing cash flow to shareholders.
Hold the line to continue cashing gross
Diamondback Energy also recently released strong quarterly results. It generated $ 740 million in free cash flow in the third quarter, bringing its cumulative total to $ 1.65 billion. The company used most of that money to pay off its debt – it’s down $ 1.3 billion this year – and increase its dividend. Diamondback has granted investors three increases this year, totaling 33%.
Meanwhile, with debt repayment strengthening its balance sheet, Diamondback Energy is poised to return even more cash to shareholders. The company said it plans to keep oil production at a stable level next year in order to maximize free cash flow. He expects to return half of that money to shareholders through a combination of share buybacks and variable dividend payments. These cash returns could allow Diamondback to produce strong total returns over the coming year if oil prices cooperate.
Return the gusher to shareholders
ConocoPhillips, Devon Energy, and Diamondback Energy all produce stupendous amounts of money these days. Instead of using that gusher to drill more wells and increase production, all three plan to return most of this windfall to shareholders through dividends and share buybacks. These cash returns could allow these oil stocks to produce attractive total returns, making them the first to buy in November.
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Matthew DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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