4 Big Energy Dividend Stocks to Avoid, 1 to Buy
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you are looking for reliable and stable dividends in a sector with consistent and unwavering demand, you may want to look into energy stocks. As more Third World economies begin to industrialize, investing in energy is becoming more lucrative as our non-renewable resources begin to become scarce while demand becomes more intense. Positioning yourself in reliable energy stocks with regular dividends allows you to reinvest in a heated sector of the market without any additional cost to you and your gains become compounded each and every time you reinvest. Which of the following energy stocks are most suitable for a dividend reinvestment plan?
Sasol’s (NYSE: SSL) last dividend payout in 2011 paid $1.22 and produced a yield of around 5% but its dividend structure is highly erratic and dividends are not guaranteed. The company paid dividends twice in 2010, but only once last year and the lack of regularity puts the dividends at a disadvantage for reinvestment because of how little the gains are able to be compounded. I think that Sasol is an extremely poor investment for anyone looking for a dividend stock due to its inconsistency and its stock price hasn’t show any significant movement over the last year, making it a do nothing stock in general. I would definitely move to something else.
As one of the world’s energy super majors, Royal Dutch Shell (NYSE: RDS-A) is an established and dependable stock that pays regular quarterly dividends without fail. Its dividend has remained at $0.84 per share and produces a yearly yield of around 5%. While there are certainly larger dividends to be had in the energy sector, Royal Dutch Shell is in an extremely insulated position in the sector with oil production at 3.3 million barrels of oil per day, and it services the United States, Europe and Asia, which are in constant need of oil.
I think that this is a buy due to its staying power in an extremely competitive market and the reliability that the company has shown through the history of its dividend payouts. Royal Dutch Shell is also beginning to move into the natural gas market more as it struggles to access more oil resources, which are hard to find due to the majority of the resources that are large enough to interest the company being owned by governments who want top dollar for them. Nonetheless, I believe that Royal Dutch Shell is fully capable of sustaining a dividend and it will remain profitable despite its resource acquisition woes.
One of the major setbacks for BP (NYSE: BP) is simply that no one likes the company anymore, and with good reason after its handling of the worst oil spill in the history of the Gulf of Mexico. Businesses are still filing lawsuits against the company for damages incurred in the spill and the claim that BP hasn’t kept its word on the deals it has made for reparations is a common one. It has still been paying its quarterly dividend of $0.42 per share, which has returned a yield of just under 4%, but I’m not sure how many more legal problems BP will be able to handle as it is constantly being bombarded by people and businesses that are seeking damages. I think that this stock has a rough future ahead of it.
PetroChina (NYSE: PTR) is the largest oil company in China and the only super major in the world that is based there. Its dividends pay out biannually, which is less desirable than a quarterly payout, but the stock has paid out more each of the last four times it has been issued— currently paying at $2.27 per share with a yield of 3%. This yield combined with the fact that it only pays out twice a year makes PetroChina a bit of a disappointment in terms of a dividend stock but it is a very good growth stock, having moved from $75 to $147 in the last three years. I don’t think that it makes the cut as a dividend stock, however.
Keyuan Petrochemicals (OTC:KEYP.PK) pays out at a projected yield of 24% but I’m not sure how long it can keep that up due to the company losing money at $0.19 per share each year. It only paid out twice in 2011, being disadvantaged against dividend stocks that pay out quarterly and allow returns to be compounded more frequently during reinvestment. I’m also turned away by the drop in Keyuan Petrochemicals stock from $5 per share to $1.50 in a matter of days last September with no real recovery at all since. I can’t find any positive to this stock and so I would suggest looking elsewhere.
Of this group, Royal Dutch Shell is the only stock that impresses me due to stability, a frequent dividend that allows the returns on its shares to be compounded more often and a stable history that is lacking any major bad press. I find little to no appeal in the others either due to dividend frequency, inconsistency or a yield that isn’t justifiable for a dividend stock. PetroChina is not a great dividend stock, but I believe it is a decent stock to take a position in if you are looking for a good growth stock rather than a stock to provide a steady and consistent dividend.
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