The week that ended last Friday saw the worst flows from energy funds since the middle of December, which then was the worst since 2014. Despite some rumblings that Russia is ready to break with OPEC on trying to hold pricing at higher levels, the reality is that demand always increases in the summer, and the restrictions placed on Iran are going to have an effect. Toss in the disaster that is Venezuela and some geopolitical heat with Iran, and prices could indeed go higher over the next 90 days.
Clearly, there is a future 20 to 50 years from now when oil will not be in demand like today, but for the near term, electric cars remain expensive, the mileage range remains low and the charging times are still long. Oil and natural gas are still the go-to fuels.
Given the current environment, we screened the Merrill Lynch energy research universe looking for stocks that make good sense for accounts looking to add or increase energy positions. We found four that are rated Buy and pay solid dividends, and some have huge potential upside to the Merrill price targets.
This top Wall Street energy pick and has dropped a stunning 11% in the past three weeks. 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.
Exxon 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.
For 75 years in a row, Exxon has raised its dividend. Thanks to its vertically integrated model in the oil and gas business, its profitability doesn’t suffer through commodity price swings like a company that’s a pure play in one segment of the value chain. Recently the company raised the dividend from $0.82 to $0.87 per share.
Shareholders receive a 4.60% dividend after the increase. The Merrill price objective is $105, while the Wall Street consensus is just $85.17. The stock closed Monday at $75.71.
This is the largest refiner in the United States and is a more conservative way to play energy. Marathon Petroleum Corp. (NYSE: MPC), one of the largest independent petroleum refining and marketing companies in the United States, is based in Findlay, Ohio. It owns seven refineries in the United States with total throughput capacity of around 1.7 million barrels per day.
The company operates approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, it operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.
The company bought rival refining giant Andeavor last year for $23.3 billion in the biggest-ever deal for an oil refiner, creating the largest independent fuel maker in the United States.
Shareholders receive a 4.18% dividend. Merrill has a stunning $100 price target, while the consensus target is $86.93. Shares closed Monday at $50.72, down almost 5% on the day.
This extremely diversified energy company has a long and successful operating history. Phillips 66 (NYSE: PSX) operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties. The company holds many of these assets within its master limited partnership, Phillips 66 Partners.
The company is able to benefit from the tax-advantaged structure while still operating a more diversified operating business that also contains many assets that aren’t ideal MLP assets, such as its fast-growing chemical manufacturing business and its super-profitable refined products marketing business.
The company reported first-quarter adjusted earnings that beat analysts’ estimates, posting a quarterly profit of $204 million.
Investors receive a 4.20% dividend. The whopping $126 Merrill price target compares with a $119.80 consensus target. Shares closed at $85.79 on Monday.
Royal Dutch Shell
This is a top international play for investors looking to add energy exposure and is yet 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.
Investors receive a 5.92% dividend. The Merrill Lynch price objective is $70. The consensus figure is $79.95, and shares closed most recently at $63.38.
Four outstanding stocks for investors to consider that have pulled way back over the past month. In addition, pay at or above a 4% dividend. With the 30-year Treasury bond yielding a puny 2.84%, these stocks make sense for total return investors looking for sensible energy ideas and dependable income.