Energy Business

Large-Cap Oil Dividend Stocks Are Dirt Cheap Buys Now

Lee Jackson

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 also 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. Meanwhile, the chemicals segment manufactures and markets basic chemicals, vinyls and performance chemicals.

With the company’s 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.

Shareholders of Occidental are paid a sizable 4.59% dividend. The $85 Merrill Lynch price target compares with a consensus estimate of $80.33. The stock closed trading most recently at $68.04 a share.

Royal Dutch Shell

This is a top international play for investors looking to add energy exposure, and it is another company that posted solid results. 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, 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.

The Merrill Lynch team remains bullish on the shares and noted this when the earnings were released:

Fourth quarter 2018 saw solid earnings (8% beat vs. consensus) and $12.2 billion organic operating cash flow ahead of our already above-consensus estimate. $27 billion organic free cash flow in fiscal year 2018 significantly de-risks the company’s outlook for $25-30 billion in 2020 – funding $25 billion buybacks. Ongoing buybacks also underline continued capex discipline.

Investors in Royal Dutch Shell are paid a huge 5.62% dividend. Merrill Lynch has set its price objective at $70. The consensus target price was last seen at $78.13, and the stock closed on Friday at $62.84.

With oil well up from the 2018 lows, these stocks are outstanding long-term buys for growth portfolios looking for income as well. With the sanctions on Iran fully in place and OPEC cuts starting to kick in, demand could soar, especially if we see positive trade deal negotiations continue to be completed. In addition, the long-term global demand implications are not going away anytime soon.