As the price of oil has risen, pulling along oil related stocks, I've been looking at the various segments involved to take advantage of what I feel might well become a new trading range for oil (call it $100/bbl to $125/bbl).
Because my portfolio is focused on retirement income/dividends, all of my positions pay some sort of dividend. Even my PM related positions are miners, (Goldcorp (GG) and Silvercorp (SVM)) which throw off dividends, although neither would be mistaken for "high yield" plays. It's easy enough to meet my parameters for income among oil producers, although their prices are "joined at the hip" with the price of oil.
Of course the problem with trying to take advantage of higher oil prices by taking positions in producers is that it subjects a portfolio to substantially increased volatility, as even giants like Exxon Mobil (XOM) can move sharply as oil prices bounce around. Consequently, I started looking at allied sectors that are energy-related, but not so directly tied to often volatile oil prices.
Having added pipeline MLPs (Magellan Midstream (MMP) and Kinder Morgan Management (KMR)), as well as some positions in tankers, I also started looking at oil services companies. One of the benefits of oil services firms is that regardless of who controls the fields and the output, the firms involved in providing the needed services get paid. Given the fact of the rise of National Oil Companies (NOCs) to discover and develop fields, and that countries have become much less generous, in terms under which they award bids for new contracts and/or concessions, suggests that the halcyon days of the international majors might be waning. Both Brazil and Iraq spring to mind as prime examples.
As often it has been pointed out, for every hopeful that makes a fortune striking the "mother lode," several fortunes are made by those selling the picks and shovels. Keeping that in mind leads me to arguably the two largest players in the oil services segment, Schlumberger (SLB) and Halliburton (HAL).
Schlumberger, or its predecessor companies, has been around since the early days of the oil industry, with the first ever electrical well log being performed back in 1927. This focus on technology has remained SLB's hallmark to this day. The firm offers a full array of services to the oil producing industry, from seismic testing to artificial lifting, which allows the firm to garner "turnkey" type contracts.
SLB is trading toward the upper end of its 52 week range (hardly a surprise, given the current strength of the energy sector), and sports a PE of 26.6 on a trailing 12 month basis (forward PE of 17.9). While this may appear a bit pricey, the industry average is 33.7, which suggests that SLB might be somewhat under-priced compared to its peers.
It recently raised its quarterly dividend from .21/sh to .25/sh for a yield of 1.13%. This might seem low to an income-seeking investor, but is actually respectable for the industry. In fact, since 2006, the dividend has doubled, from $.125/sh.
A notable competitor to SLB is Halliburton (HAL). Sporting a lineage comparable to SLB, HAL was founded in 1919, focusing on the well cementing segment in Oklahoma oil fields. Today, while still heavily exposed to North America, HAL has operations in 80 countries, having started Middle Eastern and South American operations by 1946.
HAL currently trades just fractionally below its 52-week high of $50.84, offering a yield of 0.78%. The company's been stingier with its dividend raises, with the last being back in June of 2007, when the dividend was raised from $.075 to the current $.09., whereas in the same time frame of five years, SLB has raised its dividend by 100%, as noted above.
Once again, here are two companies that are very similar. But I would give a slight edge to SLB by virtue of a stronger overseas presence, as opposed to HAL's North American focus, and SLB's somewhat better dividend, and more shareholder friendly dividend policy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
