Top 5 Oil Stocks to Watch in March 2017
Oil Stocks with Dividends
Many oil companies have struggled since the oil price rout than began in 2014, turning to cost cutting to stay afloat, including removing share repurchases and cutting or eliminating the dividend payment.
This is why it is important to look deep into companies, because it turns out there are very few that would be considered top oil stocks with dividends. These are the businesses that stand out when compared to their competitors, based on their history and future outlook.
What I have provided below are the top five best dividend stocks for march 2017, each meeting the above criteria.
|Company Name||Symbol||Price||Dividend Yield|
|Exxon Mobil Corporation||XOM||$82.30||3.65%|
|Valero Energy Corporation||VLO||$66.60||4.2%|
|Phillips 66 Partners LP||PSXP||$56.15||3.98%|
|CVR Energy, Inc.||CVI||$24.05||8.26%|
1. Exxon Mobil Corporation
When looking for an oil stock with dividends, one index to consider is the S&P 500 Dividend Aristocrats index. This index features Fortune 500 companies that have increased their dividend for a minimum consecutive 25 years and still continue to do so.
Exxon Mobil Corporation (NYSE:XOM) is on this index, having increased its dividend for the past 34 years. XOM stock’s dividend is reviewed annually in April.
Owning XOM stock would be beneficial, particularly for patient income investors. This is because if the dividend continues to grow, the yield on the cost on XOM stock will only increase as more time is spent holding onto the shares.
But will it? Based on the gradual increase in the price of oil has seen since its lows in early 2016, the answer appears to be “yes.” If this trend continues, both gross and net income should go up, part of which will ultimately be returned back to shareholders.
A concern for patient income investors may be the stock’s daily volatility affecting their ability to preserve capital. Volatility is measured by the beta, which is compared against the market. In the case of XOM stock, the beta is 0.90, while the overall market is 1.0. So if the market fell by one percent point on a trading day, then XOM stock should fall by an average of 0.90%.
2. Valero Energy Corporation
Valero Energy Corporation (NYSE:VLO) is trading near its all-time high and at a cheap valuation. VLO stock’s price-to-earnings (P/E) ratio is 13.7 times, which is almost half of that of the S&P 500 index (26.2 times).
For VLO stock to trade at a higher P/E multiple, the price of oil needs to trade higher. This is the number-one factor that influences the revenue that is generated. Since 2014, the price of oil has been cut in half, and so has Valero’s revenue.
In the meantime, management team has focused on making VLO stronger financially, which could also boost the company’s P/E. Efforts have been made to reduce the overall debt load of the company by approximately one-third over the past few years. Over the long term, this is great for investors, because there will be less debt and interest cost burden going forward.
That said, a decreased debt burden also offers short-term benefits, since Valero’s cash position has also been built up. This cash could be used a variety of ways, such as for an acquisition of assets, share buybacks, or even for special dividends, a one-time bonus dividend paid on top of the regular one.
3. Tesoro Corporation
Tesoro Corporation (NYSE:TSO) is a Texas-based company with operations in 18 states, focusing on the refining and marketing of petroleum.
TSO stock is currently trading at $87.49 and offering a dividend yield of 2.51%. And not only is TSO stock a dividend-paying stock, but a dividend growth stock as well. Since 2013, the dividend–reviewed every July–has more then doubled.
The metric used to determine future growth is the payout ratio, which provides insight regarding the percentage of earnings paid via dividend. With a conservative ratio of 25%, Tesoro’s management has flexibility to continue to increase the dividend.
The company’s steady net income also hints at future growth. Even though oil is the commodity of interest for the business and could be very volatile, those in the company have worked to ensure net income does not see the same volatility.
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4. Phillips 66 Partners LP
Phillips 66 Partners LP (NYSE:PSXP) owns, operates, obtains, and develops crude oil, refined petroleum products, and natural gas liquid pipelines.
PSXP stock began trading on the New York Stock Exchange in July of 2013 and the first dividend was paid a few months later, in October. Since then, there has been a total of 14 quarterly dividend payments to shareholders and 13 dividend hikes. This would represent a growth rate of 260%.
Dividend growth is possible for a few reasons. The first would be the payout ratio; approximately two-thirds of the earnings are currently being paid out via the dividend payment.
Second, reported revenue is increasing year after year, up 250%–nearly the same growth rate as the dividend payment. This is despite the price of oil being down from its most recent highs in 2014.
The last reason to see further growth from the dividend would be several completed acquisitions. These acquisitions were made in the pipeline segment of the market, which is known to provide steady revenue and is inflation-protected. Therefore, this revenue should help maintain the current dividend.
All this being said, Phillips 66 is one of the best energy stocks for 2017 and should be considered for investment.
5. CVR Energy, Inc.
CVR Energy, Inc. (NYSE:CVI) stock is a oil company with dividends paid to shareholders, with the twist of being a high-dividend stock. The dividend yield is 8.26%, based on the current trading price of $24.05.
If you’re an income investor concerned upon seeing such a yield that the dividend is unsustainable, don’t worry; there has not been a single quarter in which a dividend payment was missed.
Another positive found within the balance sheet is that the company is hoarding cash. Since 2011, the cash position has nearly doubled, which shows strong financial discipline on the part of the administration.
Need more evidence of the safety of the dividend? Well, there have also been special dividends paid out to shareholders. Since 2013, there have been a total of three such dividends, which would only occur if there was surplus cash.
This surplus could mean future special dividends, or instead be used to increase the current dividend. Multiple options means that patient income investors could be greatly rewarded in the future.