3 Energy Stocks For Capital Gains And Impressive Dividends

Includes: CVX, RIG, SDRL
by: IAEResearch

Investment in the energy sector can be hugely beneficial to both divided hunters as well as growth investors. The biggest reason is the consistently growing demand of the product - the energy industry will never lose its worldwide sustainable demand and, if anything, it will increase as the industries grow all over the world. There are a lot of options available to investors in the energy sector and we have chosen three companies here that should be suitable for both dividend and growth investors. The criterion to choose these stocks was to have an impressive dividend yield with attractive growth potential. We are not just looking at dividends. We are also looking for the capital gains.


The first stock on the list is SeaDrill (NYSE:SDRL), a rapidly growing deep-sea driller. The deep-sea drilling industry is growing at 9.2% at the moment, and Seadrill has been able to beat the industry average by a fairly large margin. The company has been growing revenues at 17.2%. Furthermore, SeaDrill's ROE is currently 33.6 (trailing twelve months) compared to the industry average of 7.9. Similarly, the company beats the industry average ROA of 4.1 with its trailing twelve months ROA of 11.3.

As we compare SeaDrill to the other corporations in the energy services and equipment industry and the market overall, its ROE exceeds significantly from both the S&P 500 and the industry average. The net income of the company increased by 52.1% as opposed to the same period last year, increasing from $188.00 million to $286.00 million. The growth in net income since the same period last year has greatly increased among both S&P as well as the industry average. Net cash flow for operations increased to $533.00 million i.e. 29.05% as compared to the same period last year.

Most importantly, the company has an order backlog of $19.5 billion most of which is spread across two years from now. When compared to the position of the company's stock price from the last year, it has certainly grown. That is the year-over-year growth of the company which is a good sign. I think that SeaDrill has great potential to grow this year considering its huge order backlog. In my opinion, the company is undervalued and selling at a bargain and it is a solid long-term investment.


There has been some negative news about Chevron (NYSE:CVX) recently - the company is expecting a decrease in production for the last quarter of the year, which will result in a fall in earnings. Also, the company is facing a disadvantage with its refining capacity. On top of that, the earnings of the company have decreased compared to the same period last year. However, the earnings were almost the same as the previous quarter of 2013. As a result of these negative developments, there is a panic in investors and they are dumping Chevron and in the last four days the stock has fallen by 3.2%.

CVX Chart

CVX data by YCharts

The current selling pressure should allow long-term investors to collect some more shares. Chevron has been one of the best dividend payers in the sector, and on average, the company has been increasing its dividend by 10%. The increment in the dividend is made in the second quarter of every year. I think a profitable opportunity is coming for dividend hunters who are looking for a bargain buy. As the stock goes down, the dividend yield is actually increasing. Chevron has seen difficult times before, yet the company paid and increased its dividends on time.

Chevron's current dividend yield is 3.3%, with an annual dividend of $4 per share. However, with the yearly increase coming up soon, we can expect the dividend yield to go up. If the company continues the growth in its dividends, we can expect a quarterly dividend of $1.1 per share at the start of the second quarter of the next fiscal year. Chevron is going to fall for some time after which it will stabilize. When that happens, buying that stock will be very profitable in my opinion. Not just in terms of dividends yield, but the stock will also make it back to its actual value eventually. This will give investors some capital gains too.


Transocean (NYSE:RIG) is another driller operating in the lucrative sector of the industry. The company currently has a dividend yield of 4.6%. Transocean hit its high in November 2013 at $55.37 after which it took a straight dive to $47. However, the share price has stabilized now by coming back up to $48.5.

RIG Chart

RIG data by YCharts

The company showed a huge increase in its net income in the last earnings report as compared to the same quarter a year ago. Net income increased from $381 million to $546 million i.e. a 43.3% increase, while the revenues increased just 5.2%. This shows that the costs are going down significantly and the efficiency is improving.

Moreover, the market expects Transocean to grow its earnings per share this year by 85.7% i.e. from $2.24 to $4.16. Another positive side of Transocean is its growing order backlog which is roughly around $30 billion which adds certainty to future cash flows. Based on these facts I think Transocean is an attractive investment right now and it will grow this year significantly.


Two of these companies are operating in the lucrative segment of deep-sea drilling. Deep-sea drillers have been doing remarkably well over the past two years. As the energy companies are looking to find new ways to replace depleting reserves, the demand for the services of deep-sea drillers have gone up. The third pick in the article is a solid dividend payer, which has been growing its dividend at an impressive rate. I believe this mix can give investors an attractive opportunity to grow their portfolios through capital gains as well as dividends.

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

Business relationship disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.

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