Earlier this year Exxon announced plans for spending cuts amid the coronavirus outbreak that caused a price slide significantly aggravated by Saudi Arabia’s decision to start raising oil production. Exxon’s budget for this year and every year until 2025 was set at between $30 billion and $35 billion. Many on Wall Street feel that could be cut 10% to 20% or more. Note that Exxon has one of the highest paid American CEOs.
The analysts remain very positive:
Despite some confusion on the company’s reported earnings, we contend that on a peer to peer comparison the first quarter is a clean beat versus the street. COVID-19 is the great equalizer. All majors will lean on the balance sheets, but Exxon can reduce spending as needed with growth in the recovery. The second quarter promises more sticker shock but Exxon’s yield pays investors to wait through this downturn with growth beyond.
Exxon Mobil stock comes with a huge 7.09% dividend, which probably will be defended. The $70 BofA Securities price target is higher than the $50 consensus target. Thursday’s last trade hit the tape at $49.10.
This is another solid way for more conservative accounts to play the energy sector. Marathon Petroleum Corp. (NYSE: MPC) is currently one of the largest independent petroleum refining and marketing companies in the United States. It operates approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, the company operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.
Despite a plan to spin-off Speedway, the company announced in late February a plan to invest $550 million in the chain. The investment will focus primarily on converting convenience stores the company added to its portfolio through several acquisitions over the past two years, notably, the strategic combination with San Antonio-based Andeavor in the fall of 2018, to Speedway’s branding and systems.
First-quarter results were solid and the analyst said this:
First quarter with new CEO Hennigan sees free cash flow right sized to cover a sector leading dividend yield (7%). While proposed as a response to COVID-19, the ongoing review may have longer term implications. Top refining pick: deep value with underappreciated cash flow capacity and refining leverage from an advantaged system.
Shareholders receive a 6.10% dividend, though it may be trimmed. The BofA Securities price target is a whopping $61. The consensus target is much lower at $46.07, and Marathon Petroleum stock was last seen trading at $38.04 per share.
Royal Bank of Canada
The financials have had a rough go of it, but this play is a solid way to be involved. Royal Bank of Canada (NYSE: RY) is the largest Canadian bank by market capitalization. It has 1,200 branches across Canada and is first or second across virtually all product lines in terms of market share on the retail front.
Management has built out a sizable global wholesale operation and, as a result, is deriving a larger proportion of its earnings from wholesale businesses than has been typical. Royal Bank of Canada has been fairly inactive on the acquisition front over the past several years.
The company recently posted solid fiscal second-quarter results, and the analysts said this:
Second quarter results highlighted the bank’s strong capital position and earnings power…further cementing its best-in-class status. We revise our EPS estimates 2020 to $6.50 from $7.64; 2021 to $7.08 from $6.50 with our expectations for elevated provisions for credit losses in the first half of 2021, We expect stock outperformance to continue given Royal Bank of Canada solid competitive positioning, a continued quality bias among investors.
Investors receive a 4.50% dividend. BofA Securities has set a $74 price target. The posted consensus target is $88.84, and Royal Bank of Canada stock closed Thursday at $70.44.
These five great stocks to buy all pay good dividends and offer a touch more stability than high-flying momentum stocks. If the markets give back some of the big gains from the past two months, everything could possibly trade lower, but these offer a better opportunity for nervous investors now, especially with an improving economy on the horizon.