Energy Business

How 5 Oil Companies Expect 2020 Deals to Boost 2021 Dividends

Here’s a look at the buyers in the five big oil and gas deals that have been announced since July. Investors will be closely watching for a positive effect from expected higher crude prices on these stocks’ dividend yields.

Chevron Corp. (NYSE: CVX) paid $5 billion in an all-stock deal in July to acquire Noble Energy. This deal set the tone for all the transactions that followed: no cash, low premiums and bargain prices for assets. At a median price target of $101.50, Chevron’s potential upside at its current share price of around $85 is 20%. The stock trades at multiples of 29.5 and 16.4 to estimated earnings in 2021 and 2022, respectively. Chevron pays a dividend yield of 5.99%.

Devon Energy Corp. (NYSE: DVN) paid about $2.6 billion in stock for WRX Energy in September. Devon paid a premium of just 2.6% for WRX. The stock’s potential upside at a median price target of $18 and a current price of around $15 is 19.4%. The stock trades at multiples of 25.1 and 11.9 to estimated earnings in 2021 and 2022, respectively. Devon’s dividend yield is 2.97%.

In October, ConocoPhillips (NYSE: COP) splashed out $9.7 billion in stock for Concho Resources. Conoco paid a premium of 15% for Concho but paid about double the price paid by either Conoco or Chevron per barrel of proved reserves. At a current price of around $40 and a median price target of $50, Conoco’s potential upside is around 26%. The stock trades at multiples of 53.9 and 22.0 to estimated earnings in 2021 and 2022, respectively. ConocoPhillips pays a dividend yield of 4.41%.

Just a few days after the Conoco-Concho deal was announced, Pioneer Natural Resources Co. (NYSE: PXD) agreed to pay $4.5 billion in stock for Parsley Energy. Pioneer paid a premium of 7.9% for the stock and even more per proved barrel than Conoco had paid for Concho. Pioneer has a potential upside of 18.9%, with a price target of $130 and a current share price of around $110. The stock trades at multiples of 20.5 and 13.6 to estimated earnings in 2021 and 2022, respectively. Pioneer’s dividend yield is 2.03%.

On Monday, Diamondback Energy Inc. (NASDAQ: FANG) paid $2.2 billion in stock to acquire QEP, much to the dismay of investors in both companies. At the end of 2019, QEP reported proved reserves of 382.3 million barrels of oil equivalent, or less than $6 per proved barrel, much closer to the price Chevron and Devon paid for their added assets. Diamondback’s potential upside of around 25.3% is based on a recent share price of around $44 and estimated earnings multiples of 11.6 and 8.2 for 2021 and 2022, respectively. The QEP acquisition probably has not yet been included in the earnings estimates. Diamondback pays a dividend yield of 3.27%.