Get Paid to Wait for an Energy Rebound

12/12/2019 5:00 am EST

Focus: ENERGY

Eddy Elfenbein

Editor, Growth Stock Advisor

Energy stocks haven’t merely lagged the market indexes this year, but they’ve lagged for several years. From a long-term perspective, the gap is astonishing, notes Eddy Elfenbein, editor of Investors Alley's Growth Stock Advisor.

The S&P Energy Sector started lagging the market in the middle of 2008. Since then, the S&P 500 has gained more than 143%, yet the Energy Sector has lost more than 33%. Here’s a remarkable stat: Apple by itself is now worth more than the entire energy sector.

The S&P 500 Energy Sector is still more than 40% below its all-time high from the middle of 2014. While there’s potential for a rally in energy shares, I wanted to highlight some tempting dividend yields that you can find in this sector.

Let’s start with Occidental Petroleum (OXY). OxyPete is one of the largest oil and gas companies in the world. The company was founded in 1920 and is based in Houston. OxyPete operates through three segments: Oil and Gas, Chemical, and Midstream and Marketing. The firm is currently valued at $35 billion.

Like many energy stocks, Oxy Pete’s stock has been in a world of pain. Over the last 14 months, the share price has been cut in half. Still, the company remains profitable. The last earnings report came in at 11 cents per share, which is less than one-third what Wall Street had been expecting.

This summer, Oxy Pete’s board approved a one-cent dividend increase. The company now pays out a quarterly dividend of 79 cents per share. That comes to $3.16 per share for the year. At the current price, that works out to a dividend yield of 8.2%. That’s more than four times the yield of a 10-year Treasury.

Exxon Mobil (XOM) is the granddaddy of American oil companies. XOM has operations all over the world. As of December 31, 2018, Exxon Mobil has approximately 25,000 net operated wells with proved reserves of 24.3 billion oil-equivalent barrels.

The oil bust has been hard on Exxon Mobil. In 2012, XOM made over $8 per share. This year, it will probably make about $2.66 per share. Wall Street expects an earnings rebound, and the business outlook will be much brighter after the big Aramco IPO.

Exxon Mobil currently pays a dividend of 87 cents per share. Going by the recent price, that translates to a dividend yield of 5.2%. You can’t find many CDs paying you a rate like that, and certainly not a world-renown blue-chip stock.

Schlumberger (SLB) supplies technology for oil and gas, drilling, and production. This is another energy giant. Schlumberger currently employees more than 100,000 employs across 120 countries.

The company has been through some rough times. A few years ago, the DOJ nailed them for violating sanctions against Iran. Schlumberger had to fork over $230 million in fines. As big as the company is, they had to announce some layoffs a few years ago. The total job loss came to 21,000 jobs or about 15% of the total workforce.

Things seem to be looking better for SLB. For the last earnings report, the company beat expectations by three cents per share. For 2020, Wall Street expects earnings of $1.72 per share, which is a nice increase over the $1.46 per share that Schlumberger will probably make for this year.

Schlumberger has been paying out 50 cents per share in dividends each quarter for the last four years. That gives the stock a nice cushion of yield for 5.5%.

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