Despite all the negative chatter, and a recent backup in crude oil pricing, the worst is probably over. Oil has been range bound for over six months, and more and more analysts on Wall Street feel that while 2016 could be a slow grind higher, 2017 could see significantly higher pricing. While the days of $100 a barrel are probably gone for some time, barring some geopolitical event, prices should be solidly higher 18 months from now.
The question for many investors is whether to initiate positions or add to those that could be down, which is the best route to go. Most analysts and strategists agree that large-cap blue chip stocks that pay good dividends are the way to go. Not only should they survive due to their sheer size, they will throw off income while patient investors wait for prices to move higher.
We screened the Merrill Lynch energy stock universe and found four top companies rated Buy with solid dividends for investors to consider.
ConocoPhillips
This may offer investors some of the best total return possibilities, and Merrill Lynch see it as a top yield play and recently added it to the firm’s US1 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. 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.
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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 analyst is cautious but positive on the company’s earnings report, which will come this week. Solid cuts in unnecessary spending and the possibility of increased sales of non-core assets remain ongoing positives.
Investors receive a very strong 5.54% dividend. The Merrill Lynch price target for the stock is $77. The Thomson/First Call consensus price target is $62.38. Conoco ended Wednesday at $53.44 per share.
Devon Energy
This company is expected to have 48% or more of its total 2015 production in natural gas. Devon Energy Corp. (NYSE: DVN) is an independent driller, primarily active in the United States. More than 70% of Devon’s U.S. reserves are in natural gas, with most of that lying in Texas’s Barnett Shale. The company plans to invest more than $1.1 billion in the Eagle Ford shale and drill more than 200 wells. Daily production is just under 2 billion cubic feet. Devon is also the second-largest oil producer among North American onshore independents, so this is a very balanced play for investors.
Devon’s extensive and very diversified portfolio is primarily composed of unconventional resources and reflects significant long-term growth potential. Consistent investments made by the company over time are helping it to sustain its strong performance despite, like many energy giants, having to lower exploration and production budgets for 2015.
Devon investors receive a 2.35% dividend. The $70 Merrill Lynch price target is much higher than the consensus target of $58.45. Shares closed Wednesday at $45.62.
Exxon Mobil
The world’s largest international integrated oil and gas company and just reported better second-quarter revenue numbers than expected, but earnings came in below Wall Street estimates. Exxon Mobil Corp. (NYSE: XOM) is an energy sector play that Merrill Lynch is very positive on the long term, as the overall corporate strength of the massive integrated giant plays a significant part in its usually solid earnings reporting pattern.
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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.
Investors are paid a very sizable 3.9% dividend. The Merrill Lynch price objective is $100, while the consensus target is just $83.35. Shares closed Wednesday at $81.62.
Occidental Petroleum
This is another one of the higher yielding domestic stocks 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. The company’s midstream and marketing segment gathers, processes, transports, stores, purchases and markets hydrocarbons and other commodities in support of Occidental’s businesses. In addition, its wholly owned subsidiary OxyChem manufactures and markets chlor-alkali products and vinyls.
The company posted surprising third-quarter numbers recently that beat analyst expectations, and it also announced that it would be leaving the Bakken shale after posting very heavy losses there.
Occidental also 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 receive an outstanding 4% dividend. The Merrill Lynch price target is $95. The consensus target is$79.55, and the stock closed on Wednesday at $75.62.
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These large cap dividend leaders are the best way to play the energy sector now. All these companies are suitable for growth and income portfolios, and they could make solid moves higher when the Wall Street crowd senses a definite rise in crude pricing. In the meantime, the solid dividends pay investors to wait.
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