4 Blue Chip High-Dividend Energy Stocks on Sale After Market Sell-Off

By Lee Jackson Updated Oct 2, 10:09AM EDT · Published Oct 2, 8:15AM EDT

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Energy has become the absolute whipping boy for the markets over the past year, and many people are reluctant to look at the stocks despite the powerful forward possibilities. We noted recently that energy master limited partnerships had a horrible quarter, topped off by a miserable September.

One way for investors to play the energy game is go big and go for the big dividends. While there may not be a huge oil price breakout until 2017, patient investors can buy now at the best prices since 2011. We screened the Merrill Lynch energy research universe for high-paying stocks that make good sense now. Three are rated Buy and one Neutral.

ConocoPhillips

This company may offer investors some of the best total return possibilities, and the Merrill Lynch analysts see it as a top yield play. ConocoPhillips (NYSE: COP) is a large integrated that has spent the past five years divesting assets. Although it is cash rich, the company has somewhat dampened earnings and growth expectations all year long. Now, with oil looking for a bottom, and the market watching events in the Middle East, many analysts may feel more comfortable with the stock. The company’s big production ability in the Eagle Ford could bode well for the future.

Merrill Lynch feels Conoco can accelerate growth from reloaded portfolio depth in the Bakken and Eagle Ford with visibility on future growth from a newly disclosed sizable position in the Permian. The analyst applauds the company’s recent positive earnings report, cuts in unnecessary spending and the possibility of increased sales of non-core assets.

ALSO READ: Stifel Says Not to Wait for Oil to Bottom: 4 Stocks to Buy Right Now

Conoco investors are paid a very strong 6.12% dividend. The Merrill Lynch price target on the stock is $74. The consensus price target is $63.38. Conoco closed trading Thursday at $48.16.

Exxon Mobil

The world’s largest international integrated oil and gas company reported better second-quarter revenue numbers, though earnings in below Wall Street estimates. Exxon Mobil Corp. (NYSE: XOM) is an energy sector play that the Merrill Lynch analysts are very positive on long term as the overall corporate strength of the massive integrated giant plays a significant part in the company’s usually solid earnings reporting pattern.

Merrill Lynch has stressed in the past the company’s global downstream chemical segment plays a huge part for Exxon. It may be a part that many others on Wall Street don’t fully appreciate, as the segment contributes an estimated 16% of overall total revenue. A very solid reason for adding the stock to a long-term growth portfolio is that the company consistently has demonstrated disciplined investing, operational excellence and technological innovation.

Exxon investors are paid a very sizable 4% dividend. The Merrill Lynch target price is $100. The consensus price objective is lower at $82.53. Shares closed trading on Thursday at $74.06, down almost 15% for the year.

ALSO READ: 4 Top Merrill Lynch US Defensive Stock Ideas for Q4
Chevron

This stock is very solid story for investors looking to stay long the energy sector. Chevron Corp. (NYSE: CVX) sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some Wall Street analysts estimate Chevron will have a compound annual growth rate of over 5% for the next five years, and the stock trades at a modest valuation discount to some of its mega-cap peers.

Chevron management is aggressively pursuing cost-saving initiatives and has already completed over 2,200 supplier engagements, with more in progress. Cost savings and improving investor sentiment may be a key for the mega-cap integrated as it has struggled mightily over the past year. While many on Wall Street concede that the oil market could be oversupplied for longer than most thought, massive overseas demand and a production slowdown should help pricing the rest of the year and into 2016.

Chevron is focused on current major projects, and probably not in the market for a major deal at this time, so cash levels and debt on the books should stay consistent.

ALSO READ: Nomura Sees More M&A in the Oil Patch

Chevron investors are paid a massive 5.47% dividend. The Merrill Lynch price target on the Neutral-rated stock is $100. The consensus target is $93.65 Shares closed trading on Thursday at $78.34.

Occidental Petroleum

Occidental Petroleum Corp. (NYSE: OXY) announced last year it will continue to grow dividends and expects to begin buying back more shares this year and beyond, a double plus for shareholders. Analysts feel that the company still faces the rebounding oil price correction with the strongest balance sheet in the sector, with net cash at year end 2014 estimated at around $1.7 billion, and a whopping $11 per share of cash available for buy backs. With chemicals and other products helping to blunt the drop in oil, Occidental is well positioned to continue to ride out the storm.

This is also another company taking advantage of huge cost savings. In fact, capital expenditures are expected to fall from $1.7 billion to $1.0 billion by the end of the year. The company announced recently a deal with Ecopetrol to invest up to $2 billion over the next decade to increase production at the La Cira-Infantas oil field in Colombia. According to Reuters, the new round of investments will increase production in the region by more than 200 million barrels.

Occidental shareholders are paid an outstanding 4.57% dividend. The Merrill Lynch price target is $95, and the consensus target is $78.19. The stock ended Thursday at $65.97.

ALSO READ: 5 Top Oppenheimer Oil Service Stocks to Buy for Double-Dip in Rig Activity

While energy is still a contrarian trade, the way to play it is with the big integrated stocks and exploration and production companies that pay a solid dividend. Even if the wait time is 12 to 18 months, the payout could be significant, and investors are paid nicely to wait.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.