Energy and Income: A Trio of Favorites

03/13/2017 7:00 am EST

Focus: ENERGY

There are a bunch of great income investments in the energy sector right now, especially after all the cuts and cancellations we saw in 2015 and 2016, asserts Jason Williams, resources expert and editor at Energy & Capital.

Companies are coming back online. And lots of them are ready to start paying again or increase that investor paycheck. I’m personally watching 10 or so companies I’m convinced are ready to grow exponentially in the near future. And I’m going to let you in on three of the best of them today to get you started.

Pioneer Natural Resources (PXD) is one of my favorite oil companies. And it’s one of the best out there. Shares are up almost 50% over the past year. And management here is super smart.

Trust me. I’ve had some long conversations with the CEO and CFO about Pioneer, business, and life in general. They don’t just go jumping into any oil field. There’s got to be a solid return on investment (ROI) for them and their shareholders.

They find a good field. Then they find some property in it to buy. But they don’t get involved in bidding wars.
They set a top price they’re willing to pay — a price that gives a top-notch ROI. And that’s as high as they go. Even if it means missing out on some good sites. And that’s served shareholders very well.

The company pays a dividend of $0.08 per share. Yes, it’s a little small, but that’s because management refuses to have to cut it.

So, they don’t promise more than they can deliver. And thanks to their wise investment strategy, the company is drilling in some of the best fields the world has to offer. So, I wouldn’t be at all surprised to see that dividend increase this year.

Occidental Petroleum (OXY) is another favorite of mine. It holds some of the best acreage in the world. And it shares lots of profits with investors. The company pays a 4.64% yield and has already started increasing the dividend.

With 1.9 million acres in the Permian, OXY is the second-largest company in the area. And it’s ready to expand even further with $2 billion available in credit to buy more premium land.

Management also has access to a bank account with over $3.1 billion. That would pay the dividend three times over even without any money coming in. And that’s not something that’s going to happen anytime soon.

The operating cash flows are strong — enough to pay one and a half years’ worth of the $2.3 billion in dividends. And they’re going to grow even bigger, with oil increasing in price this year. Expect another pay hike for investors coming in the near future.

Part of John D. Rockefeller’s former monopoly, Standard Oil, Chevron (CVX) is one of the biggest and best players in the industry. It’s got a storied history of dividend increases, even when prices are falling.

That’s because it’s well diversified when it comes to the regions it operates in. It’s a worldwide super-giant. And it’s been growing payments to shareholders for 31 years! That’s not a trend that’s ending anytime soon.

The company currently pays a 3.8% yield that works out to $4.32 per share. It’s also the biggest landholder in the prolific Permian oil fields with two million net acres.

Debt is low. Credit is high ($8 billion waiting to be tapped). And CVX has great assets. Cash flows are growing again. And I expect to see a substantial dividend hike coming this year.

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