3 big oil dividend stocks to buy
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3 Big Oil Dividend Stocks To Buy by Aaron Levitt | May 1, 2015 2:06 pm
3 Big Oil Dividend Stocks To Buy
Its no surprise that the current malaise in the energy sector has wreaked havoc on the various energy stocks. As oil prices have cratered, so have share prices for the entire sector. However, as theyve fallen, thats opened up plenty of opportunities for investors looking for bargains.
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And investment bank and asset manager BlackRock, Inc. (NYSE:BLK) has one top-notch suggestion focus on big oil.
According to BlackRocks chief investment strategist Russ Koesterich, big oil has the goods to keep producing gains for investors in the upcoming months. Because of their strong balance sheets, high dividends and integrated business models, big oil has what it takes to survive the current low-price oil environment.
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And now could be the time to buy these energy stocks. Koesterichs research shows that big oil is trading for just 1.5 times book value, forward price-to-earnings multiples that are below the sectors history and an average dividend yield of 4%.
That makes big oil a great value in todays market especially for investors looking for bargain-basement dividend stocks.
While Koesterich didnt name names, theres plenty of big oil bargains. Here are three of the best to buy today.
Big Oil Dividend Stocks To Buy: Royal Dutch Shell plc (ADR) (RDS.A, RDS.B)
Dividend Yield: 5.96% Price-to-earnings ratio: 13.5
Already one of the largest energy stocks on the planet, big oil firm Royal Dutch Shell plc (ADR) (NYSE:RDS.A, NYSE:RDS.B) is about to get a tad bit bigger. Thats because its in the process of buying rival BG Group for nearly $70 billion.
For that serious chunk of change, RDS is getting some serious assets.
Under the terms of the massive deal, Shell expands upon is already expansive natural gas and LNG operations. Basically, itll be THE game in town when it comes to exporting/importing the much-in-demand fuel.
Additionally, it gains some hefty boosts to its oil and natural gas reserves and its production numbers all of which will help it become the largest energy stock by the time the calendar turns over to 2018.
Thats great news for investors.
Shell is already a cash flow machine. But the new RDS/BG combo should help keep that cash flowing and rising for years to come. Those cash flows will continue to make their way back to investors via hefty dividends.
Based on its proposed $1.88 payout, Shell is yielding a healthy 5.96%. And that dividend is as good as gold. The big oil stock has paid a dividend constituently since World War II.
RDS stock can currently be had for a cheap P/E of 13.5.
Big Oil Dividend Stocks To Buy #2: Chevron Corporation (CVX)
Dividend Yield: 3.83% Price-to-earnings ratio: 11
Playing second fiddle to big oil stock Exxon Mobil Corporation (NYSE:XOM) in the U.S. isnt necessarily such a bad thing. For investors in Chevron Corporation (NYSE:CVX) its been a pretty big gold mine.
While CVX is smaller, its asset base is still quite large spanning all subsectors of the energy market. This includes fields in the Gulf of Mexico, Indonesia and Permian Basin as well as six refineries and nearly 9,000 miles worth of pipelines. That asset base throws off plenty of cash flows and earnings, which in turn powers CVXs hefty 3.83% dividend.
As for that dividend, its pretty safe and poised to keep growing.
Chevron recently made some moves to strengthen its ability to pay that yield in the current oil environment. First, it recently cut its capital expenditure spending by 13% for 2015. That will keep more of its cash in its wallet.
Likewise, it recently suspended its lucrative buyback program. While that can be seen as negative in the short run buybacks instantly boost earnings-per-share it again helps pad its cash hoard. And considering that Chevrons payout ratio is already only about 42% of its free cash flow, theres plenty of reasons why that dividend is going to stick around long term.
CVX shares can be had for a dirt-cheap P/E of 11.
Big Oil Dividend Stocks To Buy #3: Total SA (ADR) (TOT)
Dividend Yield: 5.61% Price-to-earnings ratio: 29.3
Frances Total SA (ADR) (NYSE:TOT) is often ignored in the big oil discussion. The combo of a recent string of ambitious read: expensive failed projects, being partly owned by the French government and being priced in depreciating euros has investors looking for greener pastures.
However, for those looking for a potential bargain, TOT shares could be it.
First, TOT has begun selling off several of those ambitious projects as well as non-core assets to raise cash and boost its balance sheet. All in all, Total wants to raise $5 billion this year and is targeting a total of $10 billion through 2017. That comes on the back of trimming its CAPEX budget by 10% for this year.
In addition to bolstering its balance sheet, TOT plans on using that cash to add to its core asset base of buying up assets in LNG and offshore/deepwater projects. Total is also spending a pretty penny to upgrade its money-losing refinery facilities in Europe to turn them into profit-producing machines all of which will help on the cash flow front and that 5.61% dividend.
TOT is one of the few European companies that pays on a quarterly rather semiannual schedule.