Yesterday the market ignored the political dysfunction in Washington and staged a nice rally. Today, based on futures, equities look like they are again concerned about the lack of progress in D.C. and the market looks like it will open down. Look for this type of volatility to be a core part of October as the politicians on both sides dig in and play to their base and the media rather than sitting down and talking to each other.
I think it will be important over the next couple of weeks to have a list of steady, dividend paying stocks on hand already offering reasonable valuations. An investor should be able to add to their positions in these consistent & attractive equities whenever the acrimony from the debt limit and budget fights cause the overall market to pull back. Lower entry points are good for overall portfolio performance over the longer term but one must be prepared to act.
Here are two large energy concerns on my "list" that I will be adding to on any significant market decline. Both are slowly transforming their business models, pay a nice dividend and should deliver steady earnings and dividend growth over the longer term.
ConocoPhillips (COP) is one of the largest domestic energy concerns. The company has done a good job over the last year or two in becoming a more focused domestic production play. It spun off its refinery and marketing assets with Phillips66 (PSX) in April of last year.
Conoco has also sold several overseas assets to invest and grow its U.S. production. The company has properties in the Bakken, Permian and Eagle Ford shale regions and is allocating 60% of its capital budget in growing production from its North American properties. This is transforming the energy giant to more a pure play United States centric energy concern. As the energy boom in North America continues, the market should continue to award it a higher multiple than larger energy concerns with production/assets in riskier geopolitical areas.
The shares yield almost four percent (3.9%) after increasing its payout some 5% in the second quarter. The company has met or beat bottom line expectations for five straight quarters and consensus earnings estimates for both FY2013 & F2014 have risen consistently & smartly over the past three months.
Occidental Petroleum (OXY) is another large energy concern with a large and growing presence in North America where its gets more than 60% of its overall production. It has long-lived reserves in California, as well as growing production in the Permian & Bakken shale formations. It is behind Conoco in becoming a pure play production concern, but I would expect to continue to shed refinery and non-core assets in the years ahead.
The company is actively marketing a 40% stake in its overseas operations which it believes could fetch ~$8B. Occidental has also made recent noises about selling/spinning off its California operations due to greater regulatory/environmental scrutiny in the Golden than North Dakota or Texas.
Both of these events should they occur would be view as positives and the company would have additional funds to grow production in the Permian & Bakken. The company is already tracking to 8% to 10% annual production growth in North America and additional capital budget allocation enabled by any divestitures should boost this rate of growth further.
Occidental would also be able to continue to increase its dividend payout which stands at just under three percent (2.7%). The company has almost tripled its quarterly dividend over the past seven years. Consensus earnings estimates for both FY2013 & FY2014 have ticked up over the past month.
In summary, both these energy concerns offer solid and growing dividends, are transforming themselves into more pure play domestic production players and would make good additions on any market pullback triggered by the nonsense going on in Washington.