A Dividend Increase and High Yield Make This Oil Major a Buy
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The integrated oil majors in the United States are highly profitable companies that reward their shareholders handsomely with profits and dividends that flow year in and year out. And, as oil climbs above $100 per barrel and we enter the peak summer driving season, it’s a great time to reconsider big oil.
A recent dividend increase on top of an already industry-leading dividend yield make ConocoPhillips (NYSE: COP) a buy.
Dividends that lead the pack
Conoco recently provided its investors with a solid 4.5% dividend increase, which might not sound like much, but Conoco already yielded above 4% at the time of the announcement.
For long-term investors who understand the value of reinvesting dividends, that combination of yield plus dividend growth means huge rewards over time for patient investors.
Of course, ConocoPhillips isn’t the only integrated oil company that rewards its shareholders handsomely. Industry juggernaut ExxonMobil (NYSE: XOM) almost needs no introduction. At its current price, it’s the most valuable publicly traded company in the world, holding a massive $413 billion value by market capitalization.
Despite Exxon’s huge size, its shareholder payout remains relatively low. Exxon yields just 2.75% at recent prices.
It’s true that ExxonMobil has grown its distribution faster than Conoco in recent years. To illustrate, consider that Exxon raised its dividend 10% this year and 21% last 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.
Chevron (NYSE: CVX) has grown its payout faster than ConocoPhillips as well, but again, has a smaller yield for new investors. Earlier this year, the company gave its investors an 11% dividend boost, marking the 26th year in a row of higher dividend payments.
That being said, Chevron yields 3.2% at recent prices, still below Conoco’s yield.
Strong profits mean those dividends will keep rolling in
ConocoPhillips yields in excess of 4.2% at recent prices and reported strong first-quarter operating results. The company realized 3% growth in adjusted earnings per share through the first three months of the year. Moreover, 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.
For its part, Chevron generated more than $26 billion in profits in fiscal 2012. 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 equate to 112% of net oil-equivalent production for the year.
And it probably goes without saying that Exxon has a tremendous business itself. To that end, in 2012 ExxonMobil booked $453 billion in sales. The company’s diluted earnings per share rose 15% from the previous year, and Exxon’s fantastic financial position remained intact.
Exxon reduced its long-term debt by $1.4 billion last year and holds a debt-to-capital ratio of just 6%. That’s why Exxon is one of only four U.S.-based non-financial firms to hold a triple-A credit rating from Standard and Poor’s.
ConocoPhillips: a great long-term hold
This is not to say at all that Exxon and Chevron are bad companies in any sense. Quite the contrary: investors who buy today can count on decades of strong profits and steady dividends from all three. For investors in need of current income, for example, those in or nearing retirement, Conoco is a leader among U.S.-based oil majors with a yield approaching 4.5%.
For investors with a much longer time horizon, Exxon and/or Chevron should be in your portfolio. Both stocks have lower yields now, but decades of higher dividend growth will still provide amazing long-term results.
No matter your investing preferences, there’s an oil major for you. These three stocks can be the foundation of an impeccable long-term portfolio, and should be on your watch list today.
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!