Energy

Merrill Lynch Has 3 Top Energy Stocks Rated Buy Yielding 4.5% or More

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It almost seems funny now when talking heads on the financial networks talk about interest rates shooting higher on the 10-year and 30-year U.S. Treasury debt. Oh sure they are higher than say a month ago, but they are both still trading at historical lows and make absolutely no sense for investors. What does make sense is solid stocks in a value-priced sector like energy that yield twice as much as the 10-year Treasury bond.

With oil surging higher, many of the former bears are now becoming positive, and the fact of the matter is, while it has maybe run a little too far, it ultimately is going higher. In addition, most of the companies that needed to slash their dividends already have.

We screened the Merrill Lynch research database for high-yielding quality companies and found three rated Buy that fit the bill.

Enterprise Products Partners

This is one of the largest publicly traded partnerships and a leading North American provider of midstream energy services to producers and consumers. Despite the energy slump, Enterprise Products Partners L.P. (NYSE: EPD) recently raised its distribution 1%. The company maintains a very good long-term position in the market. It provides many of its services on the basis of long-term, fixed-fee contracts, insulating against some of the wilder swings of the commodities that it trades in.

One reasons many analysts may like the stock might be its distribution coverage ratio. That ratio is well above one times, making it relatively less risky among the master limited partnerships (MLPs). The company’s distributions have grown for several quarters, and recently Enterprise Products increased the quarterly cash distribution paid to partners to $0.395 per common unit, or $1.58 per unit on an annualized basis. This is the 56th distribution hike since Enterprise’s initial public offering in 1998. Also, this is the 47th time that the company has increased its quarterly payout. The distribution signifies a 5.3% increase over the distribution in the first quarter of 2015.

Investors receive a 5.8% distribution. The Merrill Lynch price target for the stock is $28, and the Thomson/First Call consensus price target is $31.24. Shares closed Tuesday at $27.24.


Royal Dutch Shell

This company has survived the plunge in oil pricing plunge as good or better than any other major integrated. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide. The company explores for and extracts crude oil, natural gas and natural gas liquids (NGLs).

Royal Dutch Shell also converts NGLs to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy. In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, liquefied natural gas for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

The company’s $50 billion acquisition of BG Group finally closed in February, and a reported 2,800 jobs will be cut. This continues the reorganization efforts that began last year with 7,500 job cuts.

Shell investors receive a 6.1 % dividend. The Merrill Lynch price target is $61.90, and the consensus target was not available. Shares closed Tuesday at $52.35.

Total

This energy giant that is based in France. Total S.A. (NYSE: TOT) is a global integrated energy producer and provider, a leading international oil and gas company, and the world’s second-ranked solar energy operator with SunPower.

The company operates through three segments. The Upstream segment explores and produces oil and gas; ships, trades and markets natural gas, liquefied natural gas and liquefied petroleum gas (LPG); generates power; and mines and markets coal. The Refining & Chemicals segment refines and produces petrochemicals and provides sealing, insulation, fluid transfer and transmission and transportation solutions, as well as offers chemical processes and services for electronics, surface finishing and semiconductor manufacturing. It is also involved in trading and shipping crude oil and petroleum products.

The Marketing & Services segment supplies and markets petroleum products, including automotive fuels, biofuels, home heating oil and heavy fuel oil, lubricants, LPG, asphalt, aviation fuel, additives and special fuels, and special fluids through service stations for light vehicles and trucks.

The main drivers behind the company’s ability to stay profitable include an increase in oil and gas manufacturing and strong growth in the company’s very profitable refining division. Total is plenty big enough, as it has a $119 billion market cap and more than $20 billion in annual sales. The company also has $9.72 in cash flow per share, which is almost seven times the market mean.

Total investors receive a 4.6% dividend. The $50 Merrill Lynch price target is less than the consensus target of $52.07. The stock closed on Tuesday at $49.84.

Three top companies that pay outstanding distributions to shareholders. It is important to remember that MLPs like Enterprise can pay distribution that contains return of principal. Investors in foreign companies like Royal Dutch Shell and Total may pay foreign taxes. Even with those caveats in mind, these stocks make good sense for total return investors now.

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