Energy

UBS Favors 4 Top Oil and Gas Stocks That Pay Solid Dividends

Lee Jackson

Published: May 18, 2016 10:35 am

Last Updated: January 13, 2020 7:53 am

With oil prices up 75% since earlier in the year, the sector is obviously starting to garner more attention. In fact, some strategists are starting to lift their S&P 500 earnings estimates for 2016 as the price of crude drifts steadily higher. And not only are the estimates going higher for this year, they could really jump in 2017 if the price could surge up to the $60 level, which many feel is starting to look very possible.

One of the firms we cover here at 24/7 Wall St. is UBS, which is cautiously positive on the overall sector. The analysts have the sector rated Moderate Overweight, and their preferred subsectors are exploration and production and oil services, which they believe will benefit most from the recovery in oil prices. They have four stocks on the list that are the equity preference members that pay solid dividends.

Chevron

This stock is very solid story for investors looking to stay long the energy sector, and it is a preferred U.S. company to own now. Chevron Corp. (NYSE: CVX) is an integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. It sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years, and the stock trades at a modest valuation discount to some of its mega-cap peers.

The company’s Permian Basin assets are a goldmine, and that the Australian LNG business will transition from a yearly $8 billion capital consumption drag to a $2 billion to $3 billion contributor. Combined with the much lower overall capital spending for the 2016 to 2018 period, the company is poised to not only hang around, but end the sector slump in a much better position.

Chevron investors receive a massive 4.25% dividend. The Thomson/First Call consensus price target for the stock is $103.32. Shares closed trading on Tuesday at $100.73.

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