Tweedy Browne says oil and gas stocks $TOT
pay substantial dividends and are value plays:
"The Funds' oil & gas related holdings were mixed over the last six months as news of increasing inventory stockpiles pushed oil prices down, negatively impacting the stock prices of several holdings such as Devon Energy (NYSE: $DVN
), Halliburton (NYSE: $HAL
) and MRC (NYSE: $MRC
), among others. ConocoPhillips (NYSE: $COP
), Royal Dutch and Phillips 66 (NYSE: $PSX
) finished the period with nicely positive returns, while Total (NYSE: $TOT
) had only a very modest decline.
As we have mentioned in previous letters, while there will likely be ongoing near-term price volatility in our oil & gas related holdings, as sentiment swings back and forth between concerns about high inventory levels and the prospects for increasing demand against a backdrop of relatively low excess capacity, we believe the future for our oil & gas holdings continues to be positive.
We continue to believe that, in light of overall supply/demand considerations, the prospects for ongoing Saudi constraint, and continued rationalization of capital spending by the oil majors, oil prices should drift higher over the longer term. In the interim, companies such as Total and Royal Dutch, where the bulk of our exposure resides, continue to pay substantial dividends, which appear safe for the time being while we wait for value recognition in their stock prices.
Furthermore, these two fully integrated oil companies are partially hedged by their downstream refining and chemicals businesses, which benefit from lower oil prices. In early November, oil prices drifted above $60 per barrel for Brent crude, reflecting in part increasing worldwide demand, relatively low excess capacity, numerous conflict related concerns, growing confidence that OPEC will agree to extend their production cuts beyond March of 2018, and increasing capital discipline by US exploration and production companies."