Beat High Oil Prices With These Stocks
Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Most of you probably knew the lull in oil prices wouldn’t last long. After spending the past few months in the $85 per-barrel range, oil has once again breached the $100 per-barrel mark. This likely means higher prices at the pump aren’t far away.
As we enter the peak driving season, many of us will have a difficult time swallowing a higher gas bill. Unfortunately, there’s nothing any of us can do to affect the prices we pay at the pump. One action that investors can take is to profit alongside the rise in oil prices by investing in one of the world’s oil majors.
Pain at the pump means profits for these companies
In the United States, there are many oil companies that profit from our seemingly unquenchable thirst for energy. The king of domestic energy companies is ExxonMobil (NYSE: XOM), which as of this writing, is the most valuable company in the world with a $403 billion market capitalization.
Moreover, ExxonMobil’s massive size and rock-solid business model make it one of the safest stocks to invest in today. To emphasize, consider that it is one of only four non-financial, U.S.-based companies to hold the coveted triple-A credit rating from Standard and Poor’s.
Exxon has a long and storied history, tracing its roots all the way back to the days of Standard Oil. In the 125 years since its inception, Exxon has created massive amounts of wealth for itself and its shareholders. The stock is the epitome of slow-and-steady investing, providing reliable financial results and a dividend payment to investors every quarter.
To that end, ExxonMobil increased its dividend by 21% in 2012 and then again by 11% early this year.
This year’s dividend bump represented the 31st consecutive annual dividend increase from ExxonMobil. According to the company, its dividend has grown by 6% compounded annually over the past 30 years.
Of course, Exxon isn’t the only member of Big Oil that rewards shareholders handsomely. Fellow oil giant Chevron (NYSE: CVX), like Exxon, is a Dow Jones Industrial Average component, is one of the biggest companies in the world, and is massively profitable.
Chevron generated more than $26 billion in profits in fiscal 2012, and the company’s future is bright. Chevron’s immense proved reserves place the company in a great position going forward. Chevron added approximately 1.07 billion barrels of net oil-equivalent proved reserves in 2012, which equates to 112% of net oil-equivalent production for the year.
Chevron’s dividend policy is noteworthy in its own right. Earlier this year, the company gave its investors an 11% dividend boost, marking the 26th year in a row of higher dividend payments. At recent prices, Chevron yields more than 3%.
Speaking of dividends, if high yield is the focus of your investments, you’d be wise to consider ConocoPhillips (NYSE: COP) for its significantly higher yield than its peers. Conoco yields 4.25%, more than 100 basis points better than its two competitors.
Conoco’s solid operations back up its hefty dividend yield. The company realized 3% growth in adjusted earnings per share during the first quarter. Furthermore, the company directs investors to the progress being made on several of its growth priorities, including two significant oil discoveries in the Gulf of Mexico.
Like its peers, Conoco is a solid cash flow generator, racking up $4.6 billion in cash provided by continuing operations during the first quarter. Since the company paid only $800 million in dividends during the quarter, there’s no reason to think Conoco can’t fund its sizable yield for a long time to come.
If you can’t beat ‘em, join ‘em
Geopolitical tension has reared its ugly head once again, this time in Egypt as a military coup threatens to displace the nation’s sitting president. The often-jittery oil markets have reacted as you’d expect, sending oil prices back above $100 per barrel.
As a result, we’re all likely to see higher prices at the pump sooner rather than later. And, while higher prices at the pump are always painful, it may help put your mind at ease knowing you’re an owner of the company you’re shelling out money to.
That’s where ExxonMobil, Chevron, and ConocoPhillips come in. Each of these stocks is immensely profitable and benefits greatly from the rise in oil prices. As the saying goes, if you can’t beat ‘em, join ‘em, and in the case of rising oil prices, buying stock in any of these three companies is how you do just that.
Robert Ciura 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!