3 big oil stocks to take advantage of rising oil prices
Global oil consumption is recovering from the pandemic, which has pushed up oil prices, with Brent crude increasing by more than $ 70 a barrel. This rally will greatly benefit oil producers, especially the oil inventories of global majors who are more dependent on the price of oil.
In addition, several large oil stocks pay high dividend yields to shareholders of 5% or more.
In this article, we will analyze the outlook for these stocks, which offer high dividend yields and will benefit greatly from the rise in the price of oil.
And not only do they offer high dividend yields, the sustainability of their dividend payouts improves with rising oil prices.
My choices today are:
- PA (NYSE:PA)
- Exxon Mobil (NYSE:XOM)
- Enbridge (NYSE:IN B)
High Yield Oil Stocks: BP plc (BP)
BP is one of the world’s largest oil and gas companies. It operates in two segments: upstream and downstream (mainly refining).
Last year, the oil major came under heavy pressure due to the coronavirus crisis and the resulting drop in oil prices and refining margins.
Fortunately, the pandemic has started to subside this year thanks to the massive distribution of vaccines. Also taking into account sharp production cuts from OPEC and Russia, the price of oil has hit a 3-year high this year. BP benefited greatly from this rally.
In the first quarter, BP cut production by 22% due to asset sales, the natural decline of its fields and reduced investment in the context of the pandemic.
On the positive side, it more than tripled its earnings per share, from $ 0.24 to $ 0.78, thanks to the rebound in the price of oil and improved refining margins. It was one of the company’s most profitable quarters in seven years.
In addition, thanks to the continued recovery in the energy market, BP should maintain its strong performance over the coming quarters. BP tends to outperform other oil majors when oil prices rise and underperform when oil prices fall due to its high oil price sensitivity and leverage.
Renewable energies are also a potential growth catalyst for BP. BP now intends to increase its investments in clean energy tenfold in order to increase its renewable energy production capacity by twenty over the next decade.
It also aims to multiply by 10 the number of charging points for electric vehicles.
BP cut its dividend by 50% last year due to the pandemic. However, BP still offers an attractive dividend yield of 5%.
Thanks to the healthy 50% payout ratio and favorable pricing environment, the dividend is secure for the foreseeable future.
Exxon Mobil (XOM)
Exxon Mobil is the largest oil and gas company by market capitalization.
It produces oil and natural gas in a 60/40 ratio and is one of the most integrated oil majors, with significant contribution from its refining and chemicals segments.
In 2020, the pandemic caused a collapse in oil prices, which in turn drove refining and chemicals margins to all-time lows. As a result, Exxon recorded its first losses in more than a decade last year and its dividend came under pressure, with the oil major posting a cash deficit of $ 16.2 billion.
At the same time, Exxon Mobil is one of the biggest beneficiaries of the rebound in the price of oil this year. Thanks to this rally and improving refining and chemicals margins, the oil giant increased its earnings per share impressively in the first quarter, from $ 0.03 in the last year’s quarter to 0.65 $ this time.
Exxon is on track to greatly exceed its pre-COVID earnings per share of $ 2.44 (in 2019) this year.
Exxon has two strong growth engines, its reserves off Guyana and the Permian basin. Guyana is one of the most promising projects in the oil industry.
Exxon has nearly tripled its reserves in the region, from 3.2 billion barrels in early 2018 to nearly 9.0 billion barrels today. The company also plans to increase production in the Permian Basin, from 400,000 barrels per day this year to 700,000 barrels per day in 2025.
Exxon’s dividend seems sustainable, especially given the rise in the price of oil this year. Exxon has increased its dividend for 38 consecutive years, making it a dividend aristocrat. Stocks are currently returning 5.8%.
High Yield Oil Stocks: Enbridge (ENB)
Enbridge is a mid-size oil and gas company, headquartered in Canada and operating in four segments: liquids pipelines, gas transportation, gas distribution and green power.
The company transports about a quarter of North American crude oil and 20% of the natural gas consumed in the United States.
Enbridge has proven to be one of the most recession-resistant oil companies time and time again thanks to its defensive business model.
The company has a fee-based, toll-based business model that is based on charging customers a fee for the products they transport. Because contracts have minimum volume requirements, Enbridge enjoys reliable cash flow even under adverse business conditions when its customers are transporting low volumes.
While most energy companies saw their profits plummet last year, Enbridge was one of the very few oil and gas companies to increase their distributable cash flow per share.
The company increased its cash flow per share by 2% last year and is poised to increase its bottom line again this year, mainly thanks to the contribution of new growth projects.
On the flip side, Enbridge’s reliable dividend has become even more secure this year thanks to the recovery from the pandemic. Enbridge has increased its dividend (in Canadian dollars) for 26 consecutive years at an average annual rate of 10%.
In addition, it currently offers an exceptionally generous dividend yield of 6.9%. The company has a healthy 69% payout rate and is expected to continue to grow its distributable cash flow through its promising portfolio of growth projects.
At the time of publication, Bob Ciura had no (directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Bob Ciura worked at Secure dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a BA in Finance from DePaul University and an MBA with a concentration in Investments from the University of Notre Dame.