The demand for oil has been increasing steadily at an average rate of 2% per year. The fields we are discovering are getting smaller, and in more remote locations. Since demand outweighs the supply, energy prices trend upward. In 2007, crude oil prices had reached their highest value at $148. The recent global economic downturn has affected the market. On December 23, 2008, WTI crude oil spot price fell to $30.28 a barrel, the lowest since the financial crisis began.
However, we are observing a strong recovery on energy prices. World’s oil and gas supplies are limited, yet the energy demand in emerging markets is growing at a remarkably fast pace. Moreover, a significant proportion of world’s oil supplies is located in the volatile Middle East countries. Recently, the Brent price hit above $110 a barrel for the first time since October 2008, on concerns about the political unrest in OPEC countries.
While a hike in energy prices will reduce your real income, it will increase profitability of energy companies. Average consumers can hedge their real income against increasing prices by investing in this sector. It is even possible to invest in foreign oil companies through ADRs such as TOTAL SA (NYSE:TOT), and British Petroleum (NYSE:BP). However, they are subject to different rules, regulations and taxes. Therefore, we analyzed the top 7 cash rich, fast growing, US-based energy companies that have considerable dividend payouts.
Alliance Resource Partners, L.P. (NASDAQ:ARLP): ARLP is a producer and marketer of coal in the continental USA. 91.8% of its coal production is marketed to the utility companies that generate electricity. Increases in oil prices naturally increase the demand for coal. ARLP is an extremely profitable company. Profits, operating income and dividends increased by two-fold in the last 5 years. Current yield of 5% is above the average return in the coal industry.
Pioneer Southwest Energy Partners LP (PSE): Pioneer Trust engages in onshore drilling in America's southwest. Following the rise in oil prices, last year’s return was almost 40%. Pioneer is operating with a profit margin of almost 60%. Given the current P/E ratio of 11.5 and the dividend yield of 6.5%, PSE is a exceptionally smart buy.
Chevron Corporation (NYSE:CVX): Chevron is an integrated energy company that manages its international investments in subsidiaries and affiliates. Company profits and revenues have already reached their 2007 levels. Since 2005, quarterly dividends increased from $0.52 to $0.72. The current P/E value of 10 is lower than its global competitors such as Exxon Mobile (NYSE:XOM), which has a P/E of 13.6.
ConocoPhillips (NYSE:COP): Conoco is an integrated energy company that produces and markets crude oil and natural gas on a global scale. The company was hit by the crises. However, its’ profits are on the rise in the last 5 quarters. EPS already surpassed their previous peak value. (7.22 in 2007 vs 7.62 in 2010). Over the same period, dividends per share increased by 30%.
Occidental Petroleum Corporation (NYSE:OXY): Occidental is involved not only in oil and gas business but also operates in chemical materials segment. OXY is a highly profitable business that performs well in the market. In last 5 years, share prices raised from $40 to $100. Occidental’s dividends also more than doubled from $0.18 to $0.38.
Suburban Propane Partners, L.P. (NYSE:SPH): SPH is a national marketer and distributor of propane, fuel oil and refined fuels. The company is involved in marketing of natural gas and electricity. SPH is highly profitable. Thanks to its increasing revenues and profits, stock prices more than doubled in the last decade. Dividends also increased from $0.55 to $0.84. The current yield of 6% is above the industry average.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.