Dividend Safety in the Oil & Gas Giants

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There’s no doubt that one of the most stable industries out there is that of the integrated oil and gas firms. These companies are highly profitable and tend to pay some of the highest dividends in the market. The three stocks highlighted in this article are U.S. traded and major players in the oil and gas space.

So, why these three? Well, each one has an annual dividend growth rate that has exceeded 10% over the past five years. That means that while paying pretty good dividends, they are continuing to grow them. These companies also have relatively small payout ratios; we don’t want to be buying into a company that can’t possibly sustain its payouts, so a low ratio is great for us.

The three companies that we’ll take a look at in this article are Exxon Mobil (NYSE: XOM), Occidental Petroleum (NYSE: OXY) and Chevron (NYSE: CVX). These three companies meet the outlined criteria above, and they also happen to be among the best of the integrated oil and gas companies. Let’s take a look at them individually.

The TITAN

Exxon Mobil is quite clearly the titan of the field. This company has a long standing record in American history and is currently battling with Apple over the top market cap spot. Now, let’s get to the meat of it: Why is Exxon Mobil on this list? Probably because of their 10.2% annual dividend growth rate--that’s a pretty solid number and is something that any dividend investor would love to see.

The current yield on XOM stock is 2.55%, and that’s with a 9.2 P/E ratio. XOM has a very low payout ratio that sits right around the 22% mark, a number that indicates that Exxon has the capability to increase the dividend more over the coming years. Another number I like at the company? How about price to sales. It’s at 0.84. Sub-one numbers aren’t uncommon in the oil and gas industry, but at least you’re paying less than one year’s sales for the company.  

When compared to other companies, Exxon Mobil does have a price to book value that is a bit on the high side at 2.45. This obviously comes about because of the name recognition that Exxon brings along with it. If you’re looking for a company that’s right around the 1.00 mark then you should check out BP; they’re sitting at 1.09 at the time of writing.

Another Rockefeller Entry

Whether you like it or not, J.D. Rockefeller has his name everywhere in the oil and gas industry. His standard oil company is the founding basis for many current oil companies, and Chevron is no exception. Chevron made it onto this list of top companies by increasing their dividend by an average annual rate of 13.93% over the last five years, beating out Exxon but leaving room for our number three stock!

Chevron’s yield currently sits at 3.08%, and their P/E is at 8.77. Both of those numbers are better than those that can be found at Exxon. The payout ratio at Chevron is a little higher than Exxon’s but by no means is it terrible at 26%. Chevron still has plenty of room to maneuver in terms of yield with a payout ratio at that level.

Pricing ratios at Chevron are much of the same; we have a 0.95 when it comes to sales and we have a 1.72 in terms of price to book value. Both numbers are right in line with what we would typically see from the industry.

A Name You Don’t Typically Hear

You hear people talking about Exxon and Chevron, but rarely do you hear a mention of “Oxy” even though the company is the largest oil producer in the state of Texas. The company also has more than 40,000 employees around the world; it’s weird that their name is not better known amongst the masses, especially when you throw in that they’re worth some $67 billion.

Oxy has the faster growing dividend of the bunch at 16.64% annually over the last five years. Their current yield is 3.1%, right above that of Chevron. With them being a smaller company and paying a higher dividend, you’d be expecting a much higher payout ratio along with it, and that’s what you get. It’s at 38%, a number that isn’t all that bad.

The P/E ratio at Oxy is 14.54, or 10.61 if you prefer to look at forward numbers. Price to sales is an incredibly high 2.77, and price to book is right in line at 1.65. Overall, the company is priced a little higher than the others, but that could be due to the fact that there’s more room to grow from the $67 billion range than there is when you’re worth hundreds of billions.

Bottom Line

All three of these companies are solid in terms of building and growing a stable base of dividends. I like all three and I would be hard pressed to pick between them. I currently own ConocoPhillips in my own portfolio, and I like how that has been going so far. 


Ash1402 has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure