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As costs have increased and margins are expecting to decrease, oil and gas majors are feeling the squeeze. As this period of weakness is underway, these companies are reassessing their assets and presenting the long-term investor some excellent opportunities.

Even in the face of limited growth over the short-term, BP PLC (NYSE:BP), Chevron (NYSE:CVX) and Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B) offer significant returns in the form of dividends while the investor waits for some capital appreciation.

Recently the companies stock prices have come under significant pressure. Some of the reasons causing the stock prices to decline are: volatile oil prices, declining profit margins and in BP PLC's situation, lingering effects from the gulf disaster.

As all of these factors will have a significant effect on the companies bottom line and are not to be taken lightly they but they are also providing an opportunity to invest over the long-term.

BP PLC

BP PLC is an integrated oil and gas company. The company explores for oil and natural gas and also engages in refining, manufacturing, marketing, transportation, and supply and trading of crude oil, petroleum, petrochemicals products and related services.

Valuation

As stated in my article: BP PLC: Accumulate While It's Undervalued, BP is undervalued compared to companies in the same sector.

Enterprise Value or EV = Market Capitalization + Total Debt - Cash and Cash Equivalents.

  • EV - $149.457 billion + $50.284 billion - $29.499 billion = $170.242 billion
  • EV = $170.242 billion
  • EBITDA = $46.836
  • EV/EBITDA = 3.63

As the Integrated oil and gas sector often trades in the 4.62 trading range, an EV/EBITDA ratio of 3.63 indicates at current levels the stock is trading just fair value compared to other companies in its sector.

Other metrics that indicate the stock is undervalued are: BP PLC has a P/B of 1.1, below the industry average of 1.3, a P/S of 0.37, which is below the industry average of 0.58 and a P/FCF of 6.69, which is above the industry average of 5.47.

Dividend

According BP's website:

"The company intends to grow the dividend level over time, in line with the improving circumstances of the company."

BP has had a long history of dividend payments but missed three payments in 2010 due to the gulf disaster. BP currently has a yield of 4.90% with a dividend payout of $2.28 and According to yahoo.com BP has a very reasonable payout ratio of 29.00%.

Royal Dutch Shell

Royal Dutch Shell is an integrated oil & gas company. The Company explores for & extracts crude oil & natural gas, refines, supplies, trades & ships crude oil & manufactures a range of petrochemicals for industrial customers.

Valuation

As stated in my article: Royal Dutch Shell: Don't Sell... Buy, Royal Dutch Shell is undervalued compared to companies in the same sector.

Enterprise Value or EV = Market Capitalization + Total Debt - Cash and Cash Equivalents.

  • EV - $221.590 billion + 37.078 billion - 14.278 billion = $244.390 billion
  • EV = 244.390 billion
  • EBITDA = 59.365
  • EV/EBITDA = 4.11

As the Integrated oil and gas sector often trades in the 4.62 trading range, an EV/EBITDA ratio of 4.11 indicates at current levels the stock is trading just under fair value compared to other companies in its sector.

Other metrics that indicate the stock is undervalued include: a P/B of 1.12, below the industry average of 1.3, a P/S of 0.45, which is below the industry average of 0.58 and a P/FCF of 4.82, which is also below the industry average of 5.47.

Dividend

According Royal Dutch Shells Website the company states:

"The new policy is to grow the US dollar dividend in line with our view of the underlying earnings and cash flow of Shell."

Of the three companies listed Shell has the largest yield. Shell currently has a yield of 5.30% with a dividend payout of $3.60. According to the dividend growth investor Royal Dutch Shell has managed to boost distributions at least since 1993 and delivered an annual average total return of 5.10% to its shareholders in that period. To combine with a solid dividend and a strong yield Royal Dutch Shell has a very reasonable payout ratio of 34.00%.

Chevron

Chevron Corporation provides administrative, financial, management and technology support to U.S. and international subsidiaries that engage operations of petroleum, chemicals, mining, power generation and energy services.

Valuation

As stated in my article: Chevron: Acquisitions And A Weaker Q4 Provide A Buying Opportunity, Chevron is undervalued compared to companies in the same sector.

Enterprise Value or EV = Market Capitalization + Total Debt - Cash and Cash Equivalents.

  • EV - $240.53 billion + 18.581 billion - 17.014 billion = $242.097 billion
  • EV = 242.097 billion
  • EBITDA = 53.788
  • EV/EBITDA = 4.5

As the Integrated oil and gas sector often trades in the 4.62 trading range, an EV/EBITDA ratio of 4.5 indicates at current levels the stock is trading just under fair value compared to other companies in its sector.

Other valuation metrics that indicate Chevron is undervalued are: a P/B of 1.12, below the industry average of 1.3, a P/S of 0.45, which is below the industry average of 0.58 and a P/FCF of 4.82, which is also below the industry average of 5.47.

Dividend

Chevron has had a long history of paying dividends. The company has managed to boost distributions at least since 1995. With a yield of 3.60% and a payout of $4.00 this is a very healthy dividend for the investor. According to Yahoo.com Chevron shares have a payout ratio of 31.00% which indicates the company is not overpaying its shareholders.

Conclusion

While the company's have presented weaker quarterly results and are stating that earnings growth look weak over the next couple of years, I believe this is an excellent opportunity to begin purchasing shares in either one or all of these companies. While waiting for the companies to reassess their assets, deal with stagnant oil prices and in the case of BP clean-up issues regarding the gulf disaster, the investor will be rewarded for their patience in the form of dividends.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CVX, RDS.A, BP, RDS.B over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Majors Offering Value And Dividends