Three Oil Companies Offering Excellent Dividends
Cagdas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Now that Hugo Chavez has passed away, people have begun to question the short and middle-term performances of oil prices. As you know, Venezuela is an OPEC member and known for its U.S. unfriendly politics. Although oil prices have shown a little distress shortly after Chavez's death, things are pretty normal now. There are a few factors that make Venezuela a minor figure in pricing oil. Venezuela’s share of oil export is quite ignorable compared with the major oil exporters of the OPEC. Moreover, after the discovery of great reserves in the U.S., the United States is on its way to be one of the biggest oil producers in the world.
However, there is always good in throwing a few bucks on the oil companies. Even though oil prices have been a pure speculation throughout history, some of these companies offer fat dividends to offset your losses, should any occur. Therefore, I have always favored oil companies. I have looked for the top three oil companies with substantial dividends, and a maximum P/E ratio of 11.3. All of the following companies offered a minimum 4.5% dividend yield and have a minimum market capitalization of $2.5 billion. Data is derived from finviz and Morningstar. While there are lots of electric utilities listed on the market, only the following fit my criteria:
ConocoPhillips (NYSE: COP)
With a history of nearly a century in business, ConocoPhillips is a global company that markets, produces and transports crude oil and oil products. Despite massive efforts, the company has been in decline for some time. ConocoPhillips lost one-fourth of its share price over the last twelve months. The stock is currently trading around $58.40 per share.
The company is developing projects to stop the natural decline of its base assets. A drilling plan in remote Arctic waters is on the agenda for the next year, as well as production-increasing plans with new techniques in Alaska. Even though revenue is on the decline annually, the company managed to keep posting increasing revenues for the last three quarters straight. Cash flow from operating activities is climbing up for the same amount of time as well. Out of six analysts, three recommend buying and two holding, while only one suggests selling. Moreover, the company is trading with a low P/E ratio of 9.9.
By spinning off its downstream assets into a separate company (Phillips 66), ConocoPhillips is now focused on growth. Although the global economy is showing slow recovery at the moment, the energy sector is starting to get back on track. North African countries are more stable and American oil reserves are vast, so there’s little reason to worry about oil’s future for the next couple decades. This is a good time to enter the oil market, and ConocoPhillips offers the chance to collect fat dividends with significant upside potential.
Northern Tier Energy (NYSE: NTI)
As an MLP, Northern Tier Energy has been doing well since the beginning of the year. In fact, it did remarkably well even before this year. Since Jan. 1, Northern Tier returned 23.4% to its shareholders. The company also announced that its EBITDA will surpass analysts’ estimates.
Naturally, Northern Tier’s recent runner warmed the stock up, dragging its Relative Strength Index (RSI) up to 66.44%, just next to overbought territory. Analysts’ mean target price is $30.17, indicating the potential for a 4% downside. Also, its simple moving averages are alarmingly high. The stock is trading only 3.50% below its 52-week high. Its price-to sales ratio is 0.6, doubling the industry average of 0.3.
From any perspective, the stock is too hot to invest in. However, you must not ignore this stock, as its potential is vast. Institutions hold nearly 90% of the company's shares, which is a strong sign of profitability. It's profit margin is 9.0%, crushing the industry average of 1.4%. I believe Northern Tier’s potential comes from investors who are thirsty for high-yield opportunities. What’s more, insiders own nearly two-thirds of the company, which is always a positive sign that management is counting on themselves. Northern Tier is yours to invest in as soon as it cools off a bit.
Calumet Specialty Products Partners (NASDAQ: CLMT)
For the last five years, few oil companies showed the performance Calumet Specialty did. As one of the most favored publicly traded limited partnerships, Calumet returned a whopping profit of 60.3% to its investors in the last twelve months.
The company's balance sheet and cash reserves look quite appealing at the moment. With a cash flow of nearly $190 million and a dividend of 6.11%, Calumet Specialty is definitely one of the best games in town. Return on investment (ROE) is 49.5%, well above the industry average of 12.6%. Revenue and assets skyrocket year by year. Check out a small portion of its recent press release on a planned refinery:
"The refinery is expected to process 20,000 barrels per day of Bakken crude oil primarily to produce diesel to serve strong product demand in the region. Construction of the refinery could begin late in the second quarter of 2013 with startup of the refinery expected late in the fourth quarter of 2014. The refinery's engineering and plant design are in the final stages, with total cost of the project estimated at approximately $300 million."
This refinery will be a money machine. Besides, the company has shown reputable revenue growth over the last three years, and proved itself to be one of the best examples of a safe business model. Cash flow is so strong that we may see another rise in distributions in the coming quarter. The stock is a little pricey at the moment, so I recommend waiting for lower levels to add this profit generator to your long-term portfolio.
BargainReporter has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!