Comparison Of Large Cap Integrated Oil Companies For Income Investors

by: Tim Plaehn

The large integrated oil companies provide attractive attributes for investors. The companies can grow their business through exploration, production and acquisition. They provide essential global products which tend to go up in price. These big energy companies generate very large cash flows, some of which can be used to pay attractive dividends to investors. The sector of large-cap integrated oil stocks include international companies and these companies all - to one degree or another - compete on the global stage. Yet each tends to follow local customs concerning the payments of profits out as dividends, which is the focus of this discussion.

Here is the list of large, integrated energy companies by market cap and the current, listed dividend yield:

  • Exxon-Mobil (NYSE:XOM): $378 billion, Yield: 2.82%
  • PetroChina Company Ltd. (NYSE:PTR): $237 billion, Yield: 3.98%
  • Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B): $200 billion, Yield: 5.44% / 5.24%
  • Chevron Corporation: (NYSE:CVX): $199 billion, Yield: 3.57%
  • Petroleo Brasileiro S.A. (NYSE:PBR): $127 billion, Yield: 5.11%
  • Ecopetrol S.A. (NYSE:EC): $121 billion, Yield: 2.36%
  • BP Plc (NYSE:BP): $121 billion, Yield: 5.04%
  • Total S.A. (NYSE:TOT) $98 billion, Yield: 6.94%

Emerging Market Companies

The three emerging market energy companies provide interesting investment potentials, but may not appeal to income oriented stock investors. Each of these companies is more tightly tied to the national economies than are the other stocks discussed here. PetroChina is interesting enough to deserve its own in-depth article, but the fact the company pays uneven dividends in May and September makes it tough to pick up PetroChina shares for the dividend yield. Petrobras is closely controlled by the Brazilian government and government energy policies are not always in the best interest of shareholders. Currently Petrobras is struggling with in-country profitability which will probably result in lower dividends for the remainder of 2012. Ecopetrol is a very interesting growth story, but with the lowest yield listed here, dividend investors have better options. For more information on Ecopetrol read: Ecopetrol Passes Petrobras As Latin America's Largest Company.

PTR ChartClick to enlarge

PTR data by YCharts

The Americans

The two U.S. based integrated oil companies, Exxon-Mobil and Chevron, have been very good to investors. The two are very profitable and each has paid an increasing dividend to investors for many years. Each also pays out about 25% of net income as dividends, leaving plenty of cushion for dividend increases even if oil and gas prices decline for a period of time. Chevron has increased its dividend for 25 straight years and the payout has increased by an average of 11% per year for the last 9 years and 6% for the 25 year period. Exxon-Mobil has increased dividends every year since 1983 with the distributions growing by an average of 5.7% per year over that time. For income investors, Chevron is currently the more attractive choice on the basis of the higher dividend yield. The share prices of the two American companies have fared better than the international competition - except for Ecopetrol - over the last year and Chevron is the standout appreciation performer over the last three years.

CVX ChartClick to enlarge

CVX data by YCharts

The Europeans

The European integrated energy companies are at the top of the list for the combination of dividend yield plus steady distributions. French oil company Total lists the highest dividend yield, however the annual payout has not been increased since 2008. Also, Total declares and pays dividends in euros, which results in lower payments for U.S. investors holding ADR shares as the euro weakens/dollar gets stronger. In 2011 Total paid out 46% of income as dividends. Also, in 2011, Total switched from semi-annual dividend payments to quarterly distributions.

Royal Dutch Shell declares dividends in U.S. dollars then converts to pounds and euros for investors in Europe. Shell pays out 40% to 45% of net income as dividends. For 2012, the quarterly dividend from Shell was increased to 86 cents from the 84 cents paid for the previous three years. The difference between the A and B share classes is that there is a 15% Netherlands withholding tax applied to dividends from the RDS.A shares. No taxes are withheld from distributions from the RDS.B shares. U.S. investors paying income taxes on their dividends can take a credit for taxes withheld, so the class A shares provide a slightly better after-tax yield.

BP stopped paying a dividend in early 2010 due to the oil leak disaster off the Gulf Coast of the U.S. The company resumed dividend payments for the fourth quarter of 2010 - paid in March 2011 - at 42 cents per ADR share, half of the pre-disaster dividend rate. In March 2012, the dividend rate was increased by 14% to 48 cents quarterly. At the current payout rate, BP's payout ratio is 32% of the Wall Street consensus 2012 earnings estimate. Since the Gulf disaster, BP has changed its business strategy to focus on more profitable opportunities and has sold of a significant portion of its assets. The company goal is to increase operating cash flow by 50% from 2011 to 2014. It is very possible BP could increase the quarterly dividend into the 80 cents range over the next few years.

TOT ChartClick to enlarge

TOT data by YCharts

For income investors, both Royal Dutch Shell and BP currently pay 5% yields with potential for dividend growth. Watch for these two to outperform the American cousins on a total return basis over the next few years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.