3 Domestic Energy Giants to Buy and Hold
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The U.S. energy sector contains many hugely successful companies trading at attractive levels. Oil prices have leveled off under $100 per barrel over the last few years. Share prices for America’s best energy companies haven’t taken off, and as a result, these three stocks currently trade at low price-to-earnings multiples with fantastic (and rising) dividends:
ExxonMobil (NYSE: XOM) is perhaps the best known energy company of them all. Prior to the rise of Apple, ExxonMobil had the largest market capitalization in the world, which currently sits at over $400 billion. The stock is the gold standard for the benefits of slow and steady investing. For the first nine months of 2012, ExxonMobil reported that revenues nudged up a little more than a half percent, and earnings per share were more than 16 percent higher as compared to a year ago.
In addition, the company raised its dividend in 2012 for the 30th consecutive year. The current payout is a solid 2.5% yield at current prices, and the stock trades for a trailing price-to-earnings ratio of less than 10. Furthermore, the financial position of ExxonMobil is fantastic. The balance sheet is an absolute fortress. The long-term debt to equity ratio is a minuscule 5%.
Chevron (NYSE: CVX) is another giant of the American energy industry. The company holds a market capitalization in excess of $220 billion. Chevron hasn’t had quite as much success as Exxon in navigating the difficult oil market in 2012. Through the first nine months of the year, revenues actually decreased 6% versus the prior year. Furthermore, earnings per share dropped more than 11% during the first nine months. Chevron’s Upstream operations were the primary culprit for the company’s struggles through the first nine months, with that segment’s earnings falling by more than 11 percent. The company pinpointed lower crude oil volumes as the primary reason for this decline.
Despite its short-term struggles, Chevron remains fully optimistic of its future prospects. To emphasize this, Chevron has continued to actively reward its shareholders with five dividend increases since May 2009. The dividend now yields more than 3 percent at the company’s current stock price and carries a payout ratio of less than 30 percent. This pattern of raising dividends even through an extremely difficult economic environment stands as a testament to Chevron’s fantastic historical financial performance. Investors shouldn't be overly concerned with recent events--Chevron has a bright future ahead of it as a premier global energy company.
Although ConocoPhillips (NYSE: COP) is the smallest company of the three, with a $71 billion market cap, it is also a company that offers a much bigger dividend than its peers Exxon and Chevron. Conoco yields better than 4.5% and trades for an extremely attractive trailing P/E ratio of 7. Conoco hasn’t been immune to the challenges its fellow oil companies faced, with revenue in the first nine months of 2012 dropping more than 8% year over year. However, earnings from continuing operations increased 5.7% during the first three quarter. Moreover, with a dividend yield of more than 100 basis points higher than Chevron’s, Conoco is a great choice for income-starved investors.
Each of these stocks provides investors the combination of low multiples and market-beating dividend yields. These companies have paid and increased dividends to shareholders for many decades in a row, and in a world of scarce resources, will assuredly do so for the foreseeable future. These three stocks are great buys for a prospective investor.
Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool owns shares of ExxonMobil. 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!