One reason energy stocks tend to provide some hedge against inflation is that oil and gas prices typically rise during inflationary periods, explains Chuck Carlson, dividend reinvestment expert and editor of DRIP Investor.
Those increases drive bigger profits and cash flows for energy-related companies, providing them with cash to boost dividends and buy back stock. Another factor contributing to energy stocks as inflation hedges is that the sector typically scores well in terms of revenue per employee. Thus, high employee productivity helps offset some of the costs of higher wages.
Below, we review 4 energy-related stocks offering direct-purchase plans whereby any investor may buy the first share and every share directly from the company.
Among major oil companies, Chevron (CVX) and Exxon Mobil (XOM) remain appealing for their operating momentum, dividend yields, and cash flows. To be sure, these stocks will be volatile as a result of the volatility of oil and gas prices.
However, while it is unlikely that oil prices will remain above $100 for a lengthy period of time, Chevron and Exxon can do just fine even with oil prices in the $80 range. I own Exxon Mobil and view the stock as a core holding in the space. Chevron, too, represents a blue chip in the space and a worthwhile holding.
Another energy stock worth considering is Devon Energy (DVN). The firm drills for oil and natural gas in the Delaware Basin (located in Texas and New Mexico), Powder River Basin (primarily in Wyoming and Montana), Eagle Ford (Texas), and Anadarko Basin (primarily Oklahoma and Texas).
The stock pays a hefty dividend yield of 6.7%. However, the dividend has the potential to fluctuate significantly over time given that the dividend payout includes a variable component tied to the company’s cash flows.
Still, with profits on the rise, I look for dividends to remain healthy. Devon’s stock is not for the weak of heart, as I would expect these shares to show above-average volatility. Still, I see these shares producing attractive total returns this year.
The last energy stock I want to highlight is National Fuel Gas (NFG). The stock offers a combination of oil and gas producer and utility company.
This energy play with a defensive (utilities) twist makes these shares a different kind of way to play the energy sector. Yielding 2.7%, National Fuel Gas offers an attractive dividend yield and lower volatility than its energy peers.
