Energy Stocks that Promise Dividend Growth and Safety

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

There is no doubt: growth is residing in the energy sector nowadays. So for those seeking dividend income growth and safety, I suggest you choose from among the top energy stocks out there. Below I've chosen stocks that have impressive records of dividend growth in the recent past: ConocoPhillips (NYSE: COP), Chevron (NYSE: CVX), and EOG Resources (NYSE: EOG). You will find that these have healthy payout ratios, thus demonstrating their ability for sustainable dividend growth in the future. And since these are picked from among the top-rated companies in the sector, you can be assured of sound fundamentals that determine dividend safety. If you have doubts, read on and check them out yourself. 

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Sources:,,, and Yahoo Finance; data as of Feb. 14, 2013


ConocoPhillips has been increasing its dividends by an average rate of 11.78% for the past 3 years. Although the company has not made an increase in 2012, the dividend amount of $2.64 per share is already very high. Given the fundamentals of COP, this is likely to continue into the future. ConocoPhillips' valuation is at a healthy level, as shown by its P/E ratio of 9.80. It is highly profitable, with a net margin of 12.07%. In fact, if you look deeper at the trend, its profitability has significantly improved in 2011 and 2012 compared to the previous years. In terms of earnings, the company has been impressively surpassing consensus estimates for the last 3 quarters now. Thanks to the large amount of cash that the company is sitting on, its payout ratio (using cash flow) is at a healthy level of 23%. 

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Chevron was able to grow its dividends within the last 3 years by an average rate of 9.7%. This is very impressive given the high dividend amount that it is already paying its investors. In 2012, the annualized amount was $3.51 per share.  Like COP, Chevron has a low P/E ratio of 8.69 and a high profit margin, at 10.89%. The large amount of cash it has allows it to distribute high dividend amounts and still have a payout ratio based on a cash flow of 22.8%. This company relies very minimally on debt to finance its operations; its debt-equity ratio is a low 0.09. Meanwhile, CVX failed to meet the consensus estimate for its earnings in the fiscal quarter ending in December 2012, but by a small margin of 1.65%.  And this should not bother investors given its encouraging growth prospects.  Among the future sources of growth in Chevron’s operations is the success of its exploration activities in Australia. If these materialize and drilling becomes successful, Chevron is likely to lead in the supply of natural gas and LNG in the Asia-Pacific belt.

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EOG Resources

The third in my list is EOG Resources. The dividend growth at EOG may be less exciting than those of the previous two, at an average rate of 5.5% for the last 3 years, but as long as the dividend is safe based on its strong fundamentals, there are high chances for continued growth in the future. EOG has a very low payout ratio of 15.12% (3.2% if based on cash flow). Also, its profitability in recent years has been improving; it currently has a double digit margin of 10.45%. Furthermore, it has remarkably surpassed earnings estimates in the last two quarters by a wide margin. For example, the earnings for the fiscal quarter ending in September 2012 exceeded the estimates by 54%. Currently, the company’s P/E ratio is at a decent 30.17 with its forward ratio placed at 21.03. 

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With this energy boom in our midst, it is wise to sort through many promising stocks. This is only one of my attempts to hunt for those companies that demonstrate their ability to ensure the safety and continued growth of their dividend payments.

aubrey1102 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!

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