It looked like a clear road to $80 a barrel, and if you believe the financial press, that is exactly where Saudi Arabia and many of the OPEC nations want the price of oil to go. However, President Trump has backed out of the Iran deal and once again imposed sanctions that curtail the oil exports from that country. In addition, Venezuela’s situation is a mess, and its output has dropped to the lowest levels in 28 years.
With OPEC countries promising to replace that missing production, and a huge stockpile build last week, the price of oil dropped a whopping 4% last Friday to under $70. In addition, oil stocks, which had been on a roll, got hammered as trigger-happy investors were happy to take some of the big gains they have posted this year.
The good news for those looking to add energy is that some of the safest and biggest dividend-paying mega-cap integrated companies got hammered last week, offering some of the best entry points in a while. Toss in that the busy summer driving and vacation season is here, and now may be the time to scoop up some top players.
We screened the Merrill Lynch energy universe research database and found five Buy-rated plays that pay solid dividends and look like solid selections now.
This top company’s stock is still down a stunning 30% from highs printed in 2014, the last time oil traded at $70. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate and natural gas liquids (NGLs). The other segments are Midstream and Marketing.
The company reported impressive first-quarter results, and Merrill Lynch said this when covering the earnings:
Adjusted earnings per share of $0.52 beat consensus of $0.40 on lower DD&A and strong oil production that topped guidance led by the US onshore. Half of Permian production is exposed to basis in 2018, but Enterprise and Cactus 2 should leave the company fully covered by 2019. With oil prices at current levels we believe Anadarko can reload share buybacks after the program concludes by mid year.
Anadarko shareholders receive a 1.48% dividend. Merrill Lynch recently raised its price target to $95 from $87. The Wall Street consensus price objective is $79.97, and shares were up marginally early Tuesday at $67.45.
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corporation (NYSE: CVX) is a US-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas. Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.
With Permian production and asset disposals targets reset, the company can raise the dividend 20% and buyback 15% of shares. Many analysts view the strategy update as appropriately conservative for one of the more oil-levered majors. The Chevron strategy through 2020 is focused on discipline, enabled by step change in capital efficiency driven by doubling Permian production.
Shareholders receive a 3.67% dividend. The Merrill Lynch price target for the shares is $150, and the consensus target is $144.89. Shares traded at $120.95 Tuesday morning.