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Summary

  • For each S&P 500 industry sector, I will be taking a look at available companies to help determine the best stocks for income investors.
  • In determining the best stocks per industry, I will be examining both the dividend growth and dividend yields of the stocks.
  • Out of this group of Oil & Gas Exploration & Production stocks, I feel that Occidental Petroleum is currently the best long-term investment for income investors.

Overview

In this series of articles, I will be identifying which S&P 500 stocks for various S&P industries are best suitable for income investors, based on dividend growth and yield. For Part 19, I will be taking a look at Oil & Gas Exploration & Production stocks. These stocks include:

  • Anadarko Petroleum (NYSE:APC)
  • Apache (NYSE:APA)
  • Cabot Oil & Gas (NYSE:COG)
  • CONSOL Energy (NYSE:CNX)
  • Denbury Resources (NYSE:DNR)
  • Devon Energy (NYSE:DVN)
  • EOG Resources (NYSE:EOG)
  • EQT Corporation (NYSE:EQT)
  • Marathon Oil (NYSE:MRO)
  • Newfield Exploration (NYSE:NFX)
  • Noble Energy (NYSE:NBL)
  • Occidental Petroleum (NYSE:OXY)
  • ONEOK (NYSE:OKE)
  • Peabody Energy (NYSE:BTU)
  • Pioneer Natural Resources (NYSE:PXD)
  • QEP Resources (NYSE:QEP)
  • Range Resources (NYSE:RRC)
  • Southwestern Energy (NYSE:SWN)
  • Williams (NYSE:WMB)

The following stocks currently do not pay a dividend: Newfield Exploration and Southwestern Energy.

When ranking the dividend paying stocks by yield, the order is as follows:

  • Williams Companies - 3.63%
  • ONEOK - 3.47%
  • Occidental Petroleum - 2.89%
  • Peabody Energy - 2.10%
  • Marathon Oil - 2.08%
  • Denbury Resources - 1.50%
  • Devon Energy - 1.30%
  • Apache - 1.08%
  • Anadarko Petroleum - 1.05%
  • Noble Energy - 1.00%
  • CONSOL Energy - 0.56%
  • EOG Resources - 0.47%
  • QEP Resources - 0.25%
  • Cabot Oil & Gas - 0.22%
  • Range Resources - 0.17%
  • EQT Corporation - 0.11%
  • Pioneer Natural Resources - 0.04%

When ranking them by dividend growth over the past five years, the order is as follows:

  • Williams Companies - 286.40%
  • ONEOK - 204.60%
  • Anadarko Petroleum - 200.00%
  • Cabot Oil & Gas - 166.70%
  • Occidental Petroleum - 118.20%
  • Noble Energy - 100.00%
  • EOG Resources - 72.41%
  • Apache - 66.67%
  • Devon Energy - 50.00%
  • Peabody Energy - 41.67%
  • Denbury Resources - 0%
  • QEP Resources - 0%
  • Pioneer Natural Resources - 0%
  • Range Resources - 0%
  • Marathon Oil - (20.80%)
  • CONSOL Energy - (37.50%)
  • EQT Corporation - (86.40%)

Based on dividend yield and growth, the only suitable investments for income investors appear to be Williams Companies, ONEOK, Occidental Petroleum, and Peabody Energy. The only other stock that has a yield over 2% is Marathon Oil; however, it has seen negative dividend growth over the past five years. The remaining stocks all have yields well below 2% (many of them under 1%) and most of them have poor dividend growth, zero dividend growth, or negative dividend growth over the past five years.

Looking at revenue of the four stocks over the past five years, you can see that Occidental Petroleum has seen the best growth, while Williams Companies has actually seen a decline in revenue during this time period.

WMB Revenue (<a href=

WMB Revenue ((NYSE:TTM)) data by YCharts

If you go back ten years, ONEOK becomes the revenue growth leader, while Williams Companies growth remains negative.

WMB Revenue Chart

WMB Revenue (TTM) data by YCharts

In terms of earnings, Occidental Petroleum is the only company out of the four with positive earnings growth over the past five years.

WMB EPS Basic Chart

WMB EPS Basic (TTM) data by YCharts

Occidental Petroleum appears to be the only stock with a stable and appealing payout ratio. Peabody Energy has a negative ratio thanks to its negative earnings, while Williams Companies and ONEOK both have payout ratios well above 100%.

WMB Payout Ratio Chart

WMB Payout Ratio (TTM) data by YCharts

As with the payout ratio, Occidental Petroleum seems to have the only attractive PE ratio as well. Peabody Energy's ratio is unavailable due to negative earnings, while Williams Companies and ONEOK both have much higher values compared to Occidental Petroleum.

WMB PE Ratio Chart

WMB PE Ratio (TTM) data by YCharts

Conclusion

While it does not offer the highest yield, or even the highest dividend growth over the past five years, I believe that Occidental Petroleum is currently the best long-term option for income investors. The company has seen the best revenue growth over the past five years and is the only company out of the four with positive earnings growth over the past five years. Add in the company's stable payout ratio and attractive PE ratio, and I feel that it is positioned to reward long-term investors well into the future.

The company's dividend growth hasn't been as impressive as a few other stocks, but it has been significant and fairly consistent.

OXY Dividend Chart

OXY Dividend data by YCharts

When you add in the company's share repurchases, I feel that a commitment to returning value to shareholders is evident. In addition to the company's strong revenue and earnings growth, the company is spinning off its California operations, which in my opinion, lowers some risk previously associated with this stock. I feel the company continues to make strong strategic decisions that will provide significant shareholder returns in the future. As always, I suggest individual investors perform their own research before making any investment decisions.

Source: The Best Dividend Growers, Part 19: Oil And Gas Exploration And Production