Are 6 Big Cap Oil and Gas Dividend Yields Becoming Too High?

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Big Oil is synonymous with Big Money. In fact, some of the greatest wealth creations in the world have come from the energy sector, and many of America’s wealthiest individuals and some of the highest average salaries come from that sector. Now that oil has cooled off and some investors have become concerned that it could challenge $40 per barrel again, it’s worth a look to see which of the large oil and gas giants might be the most attractive for those investors with a long-term outlook.

One strategy that investors often employ in times of concern is targeting the larger dominant players in their sectors. They also target the companies that have been able to keep paying strong dividends through the good and bad times. It turns out that many of the large oil and gas stocks in the energy sector now also have well above average dividend yields.

24/7 Wall St. has conducted a fresh review and screen of the top dividends from America’s largest companies. Of the S&P 500, there were more than 25 companies that had dividend yields of 3.5% and higher even, outside of the real estate investment trusts (REITs). Some yields were much higher, and many of those were in the energy sector. To include some of the key players, there was not just a focus on those energy companies in the S&P 500. Still, foreign companies were screened out.

Having a yield above 3.5% is significant. That is officially over 1% higher than the average yield of the S&P (2.37%) and Dow (2.43%), and it was over 100 basis points higher than a blend of long-term Treasury bonds at about 2.4%. And equity investors generally do not only focus on dividends, even in oil and gas. They have the ambition that share prices will grow over time.

Investors love dividends. Some dividends are needed for retirement income. Other investors use their cash to redeploy into other investments too, and the cumulative compounding of that has helped make it broadly understood that dividends should account for up to half of all shareholder returns over time.

24/7 Wall St. used trading data and the consensus analyst price targets (mean as an average) from Thomson Reuters, and additional color has also been provided on each company. Here are the top large cap oil and gas dividends within the energy sector and with Wall Street analysts expecting long-term share price appreciation ahead.

This is where value investors have a decision to make. Have the big dividend yields in oil and gas become too attractive for value investors to pass up, or have those big money yields become too big for their own britches.

Chevron Corp. (NYSE: CVX) may not be the size in market cap of rival Exxon Mobil, but at about $200 billion it is no slouch in the industry either. Chevron now outyields its larger rival with a 4.1% dividend yield.

Chevron has seen its ups and downs with the price of oil, but it has pledged to not disrupt its dividend unless it simply faces no other serious alternatives. Revenues of $110 billion in 2016 were down from $200 billion just two years earlier.

With a share price of $104.60, its average analyst price target is still up at $122.48. Chevron has a 52-week trading range of $97.53 to $119.00, and it remains to be seen if the oil giant will raise its dividend in the quarters ahead. With its most recent dividend hike in October 2016, Chevron said that it had increased its annual dividend payment for 29 consecutive years.

Enterprise Products Partners L.P. (NYSE: EPD) remains the top player in master limited partnerships (MLPs). Its market cap of $57 billion has been more stable than many MLP rivals. While this screens out as having a 6.3% yield, the reality is that MLPs pay distributions, rather than calling them dividends. This gives part of the payout as income that is taxable, but some of the payout comes without taxes as it is classified as a return of capital.

Houston-based Enterprise Products operates over 19,000 miles of natural gas liquids pipelines and 5,400 miles of crude oil pipelines and related operations. It also owns and operates docks, terminals and storage facilities, and it has a large fleet of tractor-trailer tank trucks, engages in crude oil marketing activities, leases underground salt dome natural gas storage facilities, operates propylene fractionation and related operations and more.

Enterprise’s 6.3% yield-equivalent seems impressive enough, but at $26.55 the stock has pulled back from the highs. Its 52-week range is $24.01 to $30.25. Its consensus analyst target price is up at $32.93.