Oil companies have a rich tradition of paying out healthy dividends and having the free cash flow to grow those dividends year after year. Although the price of oil has fallen in recent months, the multinational oil companies still possess respectable dividends with the balance sheets and cash flow to pay dividends at the current rate as well as increase them in the future. Here are five blue chip oil companies dividend investors should look at.
Royal Dutch Shell – A (NYSE:RDS.A)
Shell is a large multinational which only a few years ago had some serious problems in regards to its investments in foreign countries, reserve replacement and lack of oversight within the company. The company appears to be on the right track now, however it still must be noted the issues that they face in Western Africa with unrest and constant attacks on its infrastructure – including that in the deepwater.
Shell does offer investors a $3.36/share dividend which yields 5.2% at its current share price. The company’s P/E is just above 7 and another interesting observation is that the EPS ($8.97) is above the P/E ratio – not something you see every day. Like other multinationals, the $200 billion market cap company has been making moves to position themselves to be successful in the future and keep the payouts flowing to investors.
BP p.l.c (NYSE:BP)
BP, formerly British Petroleum, recently had many problems. It appears that investors are satisfied that the company will not have issues financing its dividend or any going concern questions raised as a result of the oil spill in the Gulf of Mexico. BP has sold off many of its lower margin or slow growth assets and shored up the balance sheet. Today the company is focused on exploring for big finds in hard to explore areas, a niche only the largest of companies are able to undertake due to cost.
BP pays investors a dividend of $1.68/share which provides a yield of 4.4%. According to Yahoo Finance, BP has a payout ratio of 13%, allowing the company to continue on its growth strategy with plenty of room for raising the dividend in the future. Although there are still questions regarding litigation resulting from the spill, the company has set aside many billions of dollars already so we believe any future needs will have already been set aside.
Chevron is the result of the merger between Chevron and Texaco. The $193 billion market cap company pays investors a healthy $3.12/share dividend giving investors a yield of 3.2%. The company has an extremely strong balance sheet with more cash on hand than debt. CVX has a payout ratio of 26%, which coupled with its strong balance sheet and minimal debt should result in more share buybacks and increased dividends even if oil prices further decline.
CVX is another company whose P/E is lower than its EPS, and EPS are expected to be higher over the next year than the current year. Due to its balance sheet, earnings growth and payout ratio, CVX is the cream of the crop and a company we believe has plenty of firepower to increase the dividend.
COP is going to undergo some major changes over the next year as the company undergoes a major restructuring to increase value for shareholders. COP plans to split the company into two, an E&P focused entity and a refining company. The $89 billion market cap company could be a buyout target on the E&P side after that restructuring is complete.
The company currently has a P/E of 8.25 and a payout ratio of 30%. Analyst estimates for the company as a combined entity are expected to increase from this year to next. COP pays out a dividend of $2.64/share and provides investors a yield of 4%.
Exxon Mobil Corp. (NYSE:XOM)
Exxon Mobil is one of the most methodical companies out there and keeps a step ahead of the competition. The dividend at $1.88/share, a yield of 2.6%, is a bit low by industry standards, however the stock itself has been a steady provider of capital appreciation over the years. XOM trades at a premium to the industry, which in our opinion results in the lower yield.
The company’s P/E is 9.5 and the EPS are $7.59. The company has a payout ratio of 24%, within the industry norm, and with continued EPS growth, as is expected, XOM has room to continue to reward shareholders with fatter dividends in the future.
The multinational oil companies offer investors an opportunity to invest in blue chip companies at low valuations and healthy dividend yields. For those in their retirement years, this may be the best way to live off of the returns of your capital rather than living off of the capital itself.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.