Two Ways to Play Big Oil for Income

09/12/2019 5:00 am EST


Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

If you want to stay put and collect cash, these highly rated stocks are amongst the dividend payers to consider right now, explains income specialist Brett Owens, editor of Contrarian Outlook.

Exxon Mobil (XOM)  just renewed its "dividend aristocrat" membership card in April when it announced its 37th consecutive annual dividend increase. The stock currently yields 5.2%.

The company also handled the financial crisis better than many, dipping only about half as much as the broader market from 2007-09.

Exxon Mobil still is the alpha titan of energy. It’s the largest energy stock by market cap. It’s an integrated oil-and-gas giant that handles every step of the process, from exploration to your local Exxon gas station.

And because its operations are so widespread, it’s not as sensitive to the rise and fall of oil as many pure-play exploration-and-production companies.

The company also laid out a plan earlier this year to more than double profits by 2025. Wall Street didn’t take it to heart at the time, but then, how many analysts are pricing the stock based on what the company might do in 2025?

Chevron (CVX), long energy’s No. 2 to Exxon, is another dividend aristocrat — one that has racked up 32 consecutive years of higher payouts thanks to a 6% bump announced in January. The stock currently yields 4.1%.

It’s also a fortuitous "loser". Earlier this year, it bid $32 billion to snap up driller Anadarko Petroleum, which accepted — but left Chevron at the altar after Occidental Petroleum (OXY) stepped in with a $38 billion partially financed by Berkshire Hathaway (BRK.B), whose CEO is Warren Buffett.

Chevron refused to blow up its balance sheet just to counter the bid — a decision that Wells Fargo analyst Roger Read called “Winning By Not Overpaying.” It showed discipline, and it conserved cash — in fact, it even earned a $1 billion breakup fee. The payout remains healthy, and likely to keep ramping up for years to come.

That said, while Chevron and Exxon are both integrated majors whose varying businesses make them less sensitive to commodity prices, they still can suffer when oil does. So while I expect them to hold up better than most in times of market turmoil, energy prices are a wild card to keep watch over.

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