Dividend Investors, Don't Give Up on Energy Stocks
Attractive yields make many of the shares we recommended appealing enough until oil prices rebound.
A few months ago, energy stocks seemed poised to revive. Yet oil prices have continued to slide, taking a toll on the seven stocks we featured in How to Profit From the Oil Crash.
Only one of our choices, pipeline operator Spectra Energy Partners (symbol SEP, $45), posted a gain through February 5, returning 7%. The other picks lost an average of 12%. ExxonMobil (XOM, $80) held up well, sliding just 2%. The biggest loser: refiner Valero Energy (VLO, $57), off 20%.
Should you dump the stocks? We think not. Oil prices are likely to stabilize and gradually recover. Energy companies are scaling back on plans to explore for more oil, which should curtail future production. Supply growth may also taper off if major producing nations, such as Russia and Saudi Arabia, can hammer out a deal to trim output.
Until oil prices rebound, several of the stocks we recommended still hold appeal for their dividends. Exxon reported a $2.8 billion profit in the fourth quarter of 2015 and looks financially solid enough to sustain its quarterly payment of 73 cents. Despite losing $588 million in the fourth quarter, Chevron (CVX, $83) says it has no plans to cut its quarterly dividend of $1.07 per share. The firm should be able to maintain payouts if oil prices edge up a bit, says Credit Suisse, and, in any case, it can tap cash on its balance sheet and sell assets to raise money. Occidental Petroleum (OXY, $65) reported a $129 million loss in the fourth quarter but said its quarterly dividend of 75 cents per share was secure. (The stocks of Exxon, Chevron and Occidental yield 3.7%, 5.2% and 4.6%, respectively.) Spectra, our most generous payer, with a yield of 5.7%, looks like a solid bet, thanks to a rising tide of profits from its natural-gas pipelines. The master limited partnership recently hiked its quarterly payout by 1.2 cents, to 63 cents per share.