BofA Securities Says Buy Energy Despite Executive Orders: 5 Dividend Winners

One would think that President Biden’s initiatives on climate change would be the worst possible scenario for the energy sector. He stopped construction on the Keystone XL pipeline and rejoined the Paris Climate Agreement via executive orders, putting a shudder through energy investors. The reality, according to the BofA Securities team, is that politics often takes a backseat to supply/demand dynamics. With the potential for a reopening of the economy, energy stocks could actually benefit big time, and the firm is overweighting the sector.

In a new report, the team presents the fact that during President Obama’s administration, which was far more environmentally focused than President Trump’s, the energy sector actually outperformed by more than 15% compared with the results during Trump’s time in office. Given the potential for the economy to improve with the COVID-19 vaccines and continued tailwinds from very loose monetary policy and low interest rates, buying some of the top energy dividend-paying stocks now may be an outstanding contrarian idea.

Five stocks rated Buy at BofA Securities pay solid dividends and are attractively priced. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Chevron

This energy giant is a safer way for investors looking to be positioned in its sector, and it is the top energy sector pick for 2021 at BofA Securities. Chevron Corp. (NYSE: CVX | CVX Price Prediction) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas.
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Back in December, the company gave some solid 2021 guidance, and the analyst noted this at the time:

Chevron provided guidance around capital expenditures through 2025. On a headline basis, the company expects to spend $14 billion in 2021 ($9.7 billion in cash capital expenditures), and $14-$16 billion annually in 2022-2025 relative to Chevron’s prior out year guidance of $19-22 billion, which excluded the Noble transaction. The company remains focused on investments in the Permian, other unconventionals, and the Gulf of Mexico.

Currently, shareholders receive a hefty 5.85% dividend, which the analysts feel comfortable will remain at current levels. The BofA Securities price target for the shares is $116, while the Wall Street consensus target is down at $103.98. The last Chevron stock trade on Wednesday was reported at $88.20.
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This is another large-cap company with a stock that offers strong value for investors. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, LNG and natural gas liquids worldwide.

Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects.

Many Wall Street analysts feel that Conoco can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, with visibility on future growth from a sizable position in the Permian. While sentiment on the company has soured given, federal lands exposure, M&A uncertainty and some less than stellar earnings execution, the analysts expect the stock price to reflect a recovery in 2021 and 2022 crude oil prices.

Investors receive a 4.23% dividend. BofA Securities has a $51 price target, but the consensus price is up at $54.12. ConocoPhillips stock was last seen on Wednesday trading at $40.65 a share.
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Exxon Mobil

The energy giant finally has been removed from the penalty box on Wall Street and offers investors an incredible entry point. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

Exxon has meaningfully cut its capital spending outlook for 2021 to a range of $17 billion to $19 billion, down from an earlier estimate of between $30 billion and $35 billion. Its guidance for 2022 to 2025 is a range of $20 billion to $25 billion.

In addition, Exxon expects to exceed its initial guidance of a 15% reduction in cash operating expenses in 2020 due in part to a global workforce reduction of the same percentage point magnitude by the end of 2021.

The company pays investors a huge 7.67% dividend, which probably will continue to be defended.  The huge $79 BofA Securities price target is well above the $50.57 consensus figure. Exxon Mobil stock closed most recently at $45.35 a share.

This is another solid way for more conservative investors to play the energy sector. Marathon Petroleum Corp. (NYSE: MPC) is one of the largest independent petroleum refining and marketing companies in the United States.

Until just recently, the company operated approximately 2,750 retail sites under the Marathon and Speedway brands. In addition, it operates a logistics network of pipelines, barges, trucks and terminals that store and transport crude and products.

Last August, the company announced it would sell Speedway to 7-11 in an all-cash deal valued at $21 billion, or $16.5 billion after-tax. The sale transforms the company’s balance sheet and creates options to revisit the corporate structure of MPLX. Many on Wall Street feel that with Speedway removed, the dislocation in refining value becomes even more transparent as the company trades much cheaper than its industry peers do. The deal is expected to close this quarter.

Marathon Petroleum stock investors receive a 5.28% dividend. BofA Securities has set a $66 price target. The consensus target is much lower at $51.93, and shares closed at $43.94 on Wednesday.
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Valero Energy

This Wall Street favorite is a very solid energy play for more conservative investors. Valero Energy Corp. (NYSE: VLO) is one of the largest independent petroleum refining and marketing companies in the United States. It is based in San Antonio, Texas; owns 13 refineries in the United States, Canada and Europe; and has a total throughput capacity of around 2.5 million barrels per day.

Valero also is a joint venture partner in Diamond Green Diesel, which operates a renewable diesel plant in Norco, Louisiana. Diamond Green Diesel is North America’s largest biomass-based diesel plant.

Valero sells its products in the wholesale rack or bulk markets in the United States, Canada, the United Kingdom, Ireland and Latin America. Approximately 7,400 outlets carry Valero’s brand names.

Shareholders receive a 6.67% dividend. The BofA Securities analysts are very bullish and have their price target at $74. The consensus target is $66.88, and Valero Energy stock closed last at $58.73 per share.
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While there is always an outside chance any of these companies could cut their dividends, it seems unlikely now that the worst for the sector and benchmark oil pricing seemingly passed some time ago. We stick with four integrated giants and a large-cap refiner as they all have the ability to fight through cyclical drops in the sector and oil pricing, have multiple income streams and have already done a large amount of fiscal belt-tightening in the past year.