While most of us as consumers love seeing falling prices at the pump, especially as we close in on the holidays, investors in the big dividend-paying energy sector leaders have had a very difficult start to the fourth quarter. Top analysts have blamed the weakness on a number of factors, including the strong U.S. dollar, stock market volatility and weakness, the escalating trade dispute between the United States and China, and rising global supply.
While some of those factors could remain in place, it is important to remember that President Trump is looking to try to settle the trade disputes, especially with China, as he knows that would provide a lift to the market and the economy. With the G-20 summit set for this month, any announcement of improvement in trade differences could launch some of the battered oil leaders.
We screened the Merrill Lynch energy research universe looking for dividend-paying energy stocks and found four that look like solid plays for the rest of 2018 and next year as well.
This stock may offer investors solid upside potential and could start growing its dividends again. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids (NGLs) worldwide.
Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects. Many Wall Street analysts feel the company can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, and with visibility on future growth from a sizable position in the Permian.
The company posted better-than-expected quarterly profits last week, and the Merrill Lynch team said this:
The broader market pullback creates an attractive entry point with 25% upside to our revised $85 PO. Free cash leverage to oil is still underappreciated after revisiting a 2014 Alaska tax change muted through the downturn. Free cash flow at current strip prices suggests the current buyback program can expand 50% before planned asset sales.
Conoco investors are paid a 1.77% dividend. The Merrill Lynch price target for the shares is $85, while the Wall Street consensus price target is$80.05. The stock closed trading on Monday at $69.03 per share.
This remains a top Wall Street energy pick, and it is on the US 1 list at Merrill Lynch. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
When the company posted strong third-quarter results, the analysts noted this:
Solid quarter with earnings and cash flow beat on the downstream segment. Production beat looks like it is on Permian growth which we view as underappreciated aspect to the company’s story. All-in-all, we see the quarter as a welcome start to management plans to double cash flow by 2025 and retain our Buy rating.
Shareholders of Exxon are paid a very solid 4.02% dividend. Merrill Lynch has a price objective of $110, and the posted consensus target was last seen at $89.85. The shares ended Monday trading at $81.64.