Large-Cap Oil Dividend Stocks Are Dirt Cheap Buys Now

By Lee Jackson Updated Jan 31, 1:05AM EST · Published Feb 4, 7:05AM EST

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Large-Cap Oil Dividend Stocks Are Dirt Cheap Buys Now — © Thinkstock

Despite a big fourth-quarter sell-off in the benchmark pricing of crude oil that was brutal, dropping the price of West Texas Intermediate (WTI) from a high of $76.41 on October 3 to a low of $42.53 on Christmas Day, a stunning 44% drop, January has been much better for energy investors. In fact, WTI closed Friday at $55.26, a rise of 30% from the late December lows.

Despite the solid increase in the price of oil, the top stocks that were murdered during the fourth-quarter sell-off have not gone up on a percentage basis anywhere near as much, and they are still offering growth and income investors great entry points on the best companies.

We screened our 24/7 Wall St. research database, looking specifically at the large-cap dividend stocks, and found four that look like solid picks now, especially with the potential for larger cuts in OPEC production and a possible end to the trade issues with China.

Chevron

This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. 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 (LNG). Some on Wall Street estimate that the company will have a compound annual growth rate of over 5% for the next five years.

Jefferies has a Buy rating on the shares, and the stock is on the firm’s Franchise List of top stocks to buy. The fourth-quarter profit topped expectations as lower expenses offset a drop in earnings in Chevron’s main businesses. Earnings jumped 20% to $3.73 billion, or $1.95 a share, but the company generated $42.35 billion in revenue, compared with the $46.13 billion forecast by Wall Street.

Chevron shareholders are paid an outstanding 4.02% dividend. The Jefferies price target for the shares is $147, and the Wall Street consensus price target is lower at $138.54. The stock closed Friday’s trading at $118.37 per share.

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Exxon Mobil

This company remains a top energy pick and also posted some solid fourth-quarter results. 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.

The company 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.

The company reported a strong earnings beat, though here too revenue missed analysts’ estimates. Exxon reported earnings of $1.41 a share, well ahead of the consensus estimate of $1.08. Revenue of $71.89 billion came in below the $72.4 billion forecast by analysts.

Exxon shareholders are paid a very solid 4.32% dividend. Merrill Lynch has a price objective of $100, while the posted consensus target was last seen at $82.99. The shares ended trading at $75.99 apiece on Friday.

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Occidental Petroleum

This is one of the highest yielding domestic stocks in the energy sector. Occidental Petroleum Corp. (NYSE: OXY) is an oil-levered multinational organization with principal business segments in oil and gas and also in chemicals. The oil and gas segment explores for, develops, produces and markets crude oil and natural gas, primarily in the U.S. Permian Basin, Colombia, Bolivia, Libya, Oman, Qatar and Yemen. Meanwhile, the chemicals segment manufactures and markets basic chemicals, vinyls and performance chemicals.

With the company’s rock solid balance sheet and a commitment to dividend coverage, investors look safe for now. Occidental has paid quarterly cash dividends continuously since 1975, and it has increased its dividend each year since 2002.

Shareholders of Occidental are paid a sizable 4.59% dividend. The $85 Merrill Lynch price target compares with a consensus estimate of $80.33. The stock closed trading most recently at $68.04 a share.

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Royal Dutch Shell

This is a top international play for investors looking to add energy exposure, and it is another company that posted solid results. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and natural gas liquids.

Royal Dutch Shell also converts natural gas to liquids 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, LNG 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 Merrill Lynch team remains bullish on the shares and noted this when the earnings were released:

Fourth quarter 2018 saw solid earnings (8% beat vs. consensus) and $12.2 billion organic operating cash flow ahead of our already above-consensus estimate. $27 billion organic free cash flow in fiscal year 2018 significantly de-risks the company’s outlook for $25-30 billion in 2020 – funding $25 billion buybacks. Ongoing buybacks also underline continued capex discipline.

Investors in Royal Dutch Shell are paid a huge 5.62% dividend. Merrill Lynch has set its price objective at $70. The consensus target price was last seen at $78.13, and the stock closed on Friday at $62.84.

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With oil well up from the 2018 lows, these stocks are outstanding long-term buys for growth portfolios looking for income as well. With the sanctions on Iran fully in place and OPEC cuts starting to kick in, demand could soar, especially if we see positive trade deal negotiations continue to be completed. In addition, the long-term global demand implications are not going away anytime soon.

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.