As oil prices creep up, dividend investors are turning their eyes to the oil majors in search of yield. Today, I'm looking into five energy dividend kings to see if I can find value. Please use the research below as a starting point for your own due diligence.
Duke Energy Corporation (DUK): With dividends topping 5% and with a 7-year track record of paying out dividends, DUK may be a solid choice for dividend investors. DUK shares continue to climb, hitting a 52-week high as of Friday, but many questions remain as the company heads into the courtroom to petition for approval of the merger between DUK and Progress Energy Inc (PGN). If approved this merger would create one of the largest us utilities, with over 7.1 million customers throughout the Midwest, the Carolinas, and Florida. Potential merger partner PGN has agreed not to charge customers over $24 million in damages related to the problems resulting from temporary shutdowns of its Huntsville plant in 2010.
It appears that the industry may be undergoing a consolidation as competitor Constellation Energy Group Inc (CEG) may be acquired by Chicago based Exelon (EXC). While this acquisition still requires regulatory approval and may face challenges from Maryland Gov. Martin O’Malley, if approved it would create another behemoth in the utility industry. While at a 52-week high of $19.57, if the merger is approved, DUK may be a great buy as the cost savings measures the two companies are planning to put into motion has the potential to dramatically improve the profitability of the new company.
Exxon Mobil Corporation (XOM): With an expected dividend yield of 2.5%, XOM again finds itself well positioned to maximize absolute returns. But the oil and gas giant may have more to offer if developing-market economies increase their energy demands. XOM’s quarterly revenue growth year over year topped 36.3%, a stunning 26.1% above industry average. Two competitors, British Petroleum (BP) and Chevron Corporation (CVX), offer higher levels of expected dividends, 4.2% and 3.10% respectively, but are accompanied by greater levels of uncertainty. Judges within and outside the United States are continuing to rule on existing litigation involving BP from catastrophe in the gulf of Mexico, along with questions involving unpaid royalties.
CVX does offer some greater security through diversification, with the recent signing of an agreement with the Japanese power company Kyushu Electric Power Co which extends for the next two decades. When considering operating margins, XOM succeeded in a 12.74% margin, exceeding the industry average by almost two percent, and BP by over 6%, but was out shone by the CVX who recorded an operating margin of 15.07%.
In another key point of interest, earnings per share, XOM performed well above industry average but was again outshone by CVX. XOM reported an earnings per share of $7.59, while CVX posted $11.45, BP listed a $6.28 and the industry lagged at $2.24. Ultimately, XOM remains a strong competitor and industry leader, and while its economic success is likely to continue with the growth of emerging and developing markets' demand for energy, lagging demand in developed markets may limit this company’s success.
Chevron Corporation has had mixed interpretations over the last week, with analysts at Jefferies downgrading earnings per share while other analysts, including Agricole and Standpoint Research, have upgraded the stock from a outperform or hold, to a buy or accumulate. Some of this variation may be a result of favoring by some analysts over the coveted cash-generating dividend yield, which currently sits and 3.1% for CVX. Competitors such as Exxon Mobile Corporation and British Petroleum hold similar dividend yield rates at 2.5% and 4.2% respectively. Within the industry, CVX certainly holds a strong position by having substantially stronger earnings per share with $11.45 over BP’s $6.28, XOM’s $7.59, and an industry average of $2.24.
Another strong variable for CVX is its current cash position. Of the competition mentioned previously, it is the only one to have more cash than debts, with almost $18 billion in cash and less than $10 billion in debt. While many may view that as neglect by management to invest fully, it may represent a more conservative approach in the past, positioning them today to be more able to make large investments if the opportunities present themselves. Finally, CVX recently announced an agreement with Japanese power company Kyushu Electric Power to provide liquefied natural gas for the next two decades to help the company respond to the catastrophe resulting from the Tsunami.
ConocoPhillips (COP), a high dividend yield of 3.9%, may catch the eye of dividend focused investors, but that is not all there is to love about COP. With a much smaller market cap ($90.91 billion) than larger competitors such as British Petroleum with $121.56 billion, Chevron Corporation with $195.59 billion, or Exxon Mobil with $354.84 billion, COP still demonstrates substantial sustained growth. Quarterly revenue growth year-over-year is listed at 45.70%, more than four times the industry average of 10.20%. Relative to competitors such as BP with 37.5%, CVX with 30.6%, and XOM with 36.3%, COP continues to outshine its competition.
While most statistics regarding COP show significant upside, it is important to note indicators suggesting a negative forecast for the stock, most significantly in this case expected five-year PEG ratio. Yahoo finance suggests this figure is at -40.2, an indication that earnings may decrease substantially over the next five years. While there are some indications the dividend rate for COP is at risk going forward, the sales of its interests in lower-producing assets may indicate a refocus by management on higher-producing assets going forward, a move that should be beneficial to investors.
Total S.A. (TOT): Even amid the European market turmoil resulting from the uncertainty of the future of Greek bonds and fears of bank solvency, solid European firms continue to produce returns directly accessible to investors: dividends. At 3% Total’s dividend yield should interest investors of all types, but especially those looking for some protection from the recently volatile European banking stocks. While not the highest dividend yeild for energy-producing global corporations, TOT does offer an option to diversify from American oil corporations without having to become involved in the mess of British Petroleum.
While much speculation exists as to how much a sale would generate, TOT appears to be attempting to unload three properties in the U.K.’s North Sea, a move that may be pursued to help lower the burden of $45.11 billion in debt. While this level of debt is not unheard of (as demonstrated by BP’s $46.89 billion in debt), many other large energy corporations, including Exxon Mobile and Chevron, have less ($16.49 billion and $11.52 billion, respectively). Ultimately TOT may provide some diversification from American oil conglomerates, however high levels of debt and the uncertainty of the eurozone region pose significant questions that investors should consider thoroughly.