Energy continues to be the hardest trade to figure out, and perhaps the most controversial sector on Wall Street. Some preach the “lower for longer” mantra, while others say the huge drop in production, combined with China demand that may be much larger than estimated, has made for the ultimate investing conundrum.

In a new report, Merrill Lynch adds a top-yielding integrated to the prestigious US1 Best Ideas list. We also screened the Merrill Lynch stock research universe for other high-yielding energy stocks. These make good sense for investors as it may take time for the sector to come back, and collecting large dividends while waiting makes the time go by quicker. All these stocks are rated Buy, except where noted.

ConocoPhillips

This may offer investors some of the best total return possibilities, and Merrill Lynch sees it as a top yield play and added it to the US1 Best Ideas list. 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. With oil looking for a bottom, and the market watching events in the Middle East, many analysts may feel more comfortable with this stock.

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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 analysts also have applauded the company’s recent positive earnings reports, cuts in unnecessary spending and the possibility of increased sales of non-core assets. The analysts also see the rollover in spending and asset sales as underpinning the stock. Lastly, the company offers investors conservative exposure to the oil price recovery, while paying the highest dividend of integrated peers in the sector.

Conoco investors are paid a strong 5.53% dividend. The Merrill Lynch price target on the stock is $77. The Thomson/First Call consensus price target is $62.38. Shares closed Tuesday at $53.54.

Chevron

This is very solid story for investors looking to stay long the energy sector. Chevron Corp. (NYSE: CVX) is one of the world’s leading integrated energy companies, involved in virtually every facet of the energy industry. Chevron explores for, produces and transports crude oil and natural gas. It refines, markets and distributes transportation fuels and lubricants and manufactures and sells petrochemicals and additives. it generates power and produces geothermal energy, and develops and deploys technologies that enhance business value in every aspect of its operations.

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Some Wall Street analysts estimate the company 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 continues to aggressively pursue 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 investors are paid a very nice 4.76% dividend. The Merrill Lynch price target on the Neutral rated stock is $100, and the consensus target is $93.60. Shares closed Tuesday at $89.99.
Occidental Petroleum

This top energy stock is another one of the higher yielding domestic ones in the energy sector. Occidental Petroleum Corp. (NYSE: OXY) is an international oil and gas exploration and production company with operations in the United States, Middle East and Latin America. It is one of the largest U.S. oil and gas companies, based on equity market capitalization.

Occidental’s midstream and marketing segment gathers, processes, transports, stores, purchases and markets hydrocarbons and other commodities in support of Occidental’s businesses. In addition, the wholly owned subsidiary OxyChem manufactures and markets chlor-alkali products and vinyls.

Many analysts feel that the company faces the rebounding oil price correction with the strongest balance sheet in the sector, with net cash at year end 2014 was estimated at around $1.7 billion, and a whopping $11 per share of cash available for buy backs. 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 reports from Reuters, the new round of investment will increase production in the region by more than 200 million barrels.

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Occidental shareholders are paid an outstanding 4.11% dividend. The Merrill Lynch price target is $95. The consensus target is $78.67. Shares closed on Tuesday at $72.58.

Exxon Mobil

This is the world’s largest international integrated oil and gas company, and it reported better second-quarter revenue numbers, but earnings came in below Wall Street estimates. Exxon Mobil Corp. (NYSE: XOM) reports third-quarter numbers next week. Merrill Lynch sis very positive on this energy sector play for the long term, as the overall corporate strength of the massive integrated giant plays a significant part in the its 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. Very solid reasons for adding the stock to a long-term growth portfolio are that the company has consistently demonstrated disciplined investing, operational excellence and technological innovation.

Exxon investors are paid a very sizable 3.65% dividend. The Merrill Lynch target is $100. The consensus price objective is lower at $81.84. Shares closed trading on Tuesday at $80.83.

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All these large cap energy leaders offer investors the kind of total return that can add up to long-term gains. In addition, to enhance total return investors can write covered calls on the positions and generate extra income. With all of them trading way below 52-week highs, they continue to make good sense now.

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