Energy Business

Oil Down 5% in a Week: Buy These 4 Mega Cap Stocks on the Dip

Occidental Petroleum

This is one of the highest yielding domestic stocks in the energy sector. Occidental Petroleum Corp. (NYSE: OXY) is an oil-levered multinational organization with principal business segments in oil and gas and in chemicals. The oil and gas segment explores for, develops, produces and markets crude oil and natural gas, primarily in the U.S. Permian Basin, Colombia, Bolivia, Libya, Oman, Qatar and Yemen. The chemicals segment manufactures and markets basic chemicals, vinyls and performance chemicals.

With a rock-solid balance sheet and a commitment to dividend coverage, investors look safe for now. Occidental has paid quarterly cash dividends continuously since 1975, and it has increased its dividend each year since 2002.

Merrill Lynch analysts noted this positive in a recent report:

Permian growth looks likely to exceed guidance over the next 3 years. Well results have moved to sector leading in key operating areas, accelerating the bridge to the chief financial officers pledge to break even to mid 2018 at $50 oil, driving a step change in free cash flow, above ‘major’ peers and underpinning a re-rating in dividend yield.

Shareholders are paid a huge 4.62% dividend. Merrill Lynch recently lifted its price target to $76 from $70. That compares with a consensus target of $65.12. The stock was last seen trading at $66.85 per share.

Royal Dutch Shell

This company has survived the seesaw in oil pricing as good as or better than any other major integrated stock. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and natural gas liquids.

Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy. In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas (LNG) for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

Shell’s fourth consecutive quarter of dividend coverage at lower oil prices helps reaffirm the positive investment case for the company. Earnings have continued to surprise Wall Street to the upside, and analysts are bullish on the company’s cost reduction targets.

Investors are paid a huge 5.12% dividend. Merrill Lynch has set its price objective at $69. The consensus figure is $67.44, and the shares were trading at $61.80.

Shares of these four mega-cap companies still offer value and potential upside. Add in the long-time consistent dividend pay outs, and the stocks make sense for all accounts looking for energy exposure but with a larger degree of safety.