Why You Should Consider These European Energy Stocks
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Underneath the scary headline news from Europe, the continent harbors some extremely profitable companies, particularly within the energy sector. If you’re an investor interested in drilling for profits for your portfolio, and you can withstand the pervasive fear that often coincides with news from Europe, these stocks are for you.
... meeny, miney, moe
Eni (NYSE: E) is an oil major based in Italy with a market value of $82 billion. Eni trades at a trailing P/E ratio of 8, and provides investors with a juicy 5% dividend yield. After rallying to 52-week highs to begin 2013, Eni fell amid turmoil over the country's parliamentary elections. Investors may want to thank Mr. Market for the stock’s 13% drop over the past six weeks.
Eni reported that fourth-quarter adjusted operating profit rose more than 17% year over year. Full-year results were also solid, as net sales increased more than 18% and adjusted profit rose almost 15% versus the prior year.
Eni also took steps to strengthen its balance sheet by reducing its net debt by more than 12 billion euros during the year. These measures allowed the company to reward its shareholders by announcing that it paid a dividend in 2012 that was 3.8% higher in euros per share.
In addition, the company is optimistic about its long-term growth outlook due to upcoming projects in Libya, as well as promising potential in their Mozambique and Kashagan start-ups. These new projects may fuel management’s expectations for 3% growth in production in 2013, along with more than 1 billion new barrels of oil equivalents targeted through new exploration.
The total package
Total (NYSE: TOT) is a French-based oil company with a $116 billion market capitalization. Total offers a rock-solid 5% dividend yield, trades at a trailing price-to-earnings ratio of only 8, and its share price is exactly where it was in November 2008, during the depths of the financial crisis. Total’s dividend is well-supported, as the company carried a payout ratio of only 45% in 2011.
Total reported an 8% increase in sales and also an 8% increase in full-year 2012 adjusted net income per share (in euros). The company is a great cash generator, reporting a 15% year over year increase in cash from operations during 2012. In addition, the company is conservatively capitalized, carrying a net-debt-to-equity ratio of only 21.4%.
The company’s success will be channeled through to shareholders in the form of its big dividend, which the company expects to increase a further 3% (in euros per share) from its already-high level.
An interesting peer in the space to consider is Statoil (NYSE: STO), a $78 billion integrated energy company based in Norway. Statoil delivered great fourth-quarter and full-year 2012 results, highlighted by production of more than 2 billion barrels of oil equivalents per day in 2012. That's up 8% from 1.85 billion barrels per day in 2011. Fourth-quarter adjusted earnings rose 5% during the fourth quarter and 7% in 2012 year over year.
Management is highly optimistic about the company’s prospects going forward, including a proposed dividend increase this year. This optimism is fueled by the company’s effective exploration efforts. Statoil is adding more than 1.5 billion barrels in new resources, and is maturing its high quality project portfolio.
Statoil trades at a compelling trailing price-to-earnings ratio of 6 and pays a solid dividend yield in excess of 3.5% to shareholders at recent prices.
The bottom line
Each of these companies has exhibited more volatility than their U.S. based-energy peers, but could provide greater returns assuming Europe can get its act together. Worries surrounding Europe’s debt problems seem to shake the market’s confidence on a regular basis. However, you shouldn’t be scared away from international stocks entirely. For investors looking for geographical diversification, modest valuations, and solid dividend yields in the energy sector, these companies may be a great place to look and could provide compelling returns going forward.
Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Statoil (ADR) and Total SA. (ADR). 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!