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 and February has been much better for energy investors. In fact, WTI closed Tuesday at $53.73, a jump of almost 30% from the late December lows.
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In a new RBC research report, the energy team makes some changes to the firm’s well-respected Global Energy Best Ideas list. The RBC recommendations have been outstanding from a performance standpoint, and the report noted this:
In January, the RBC Global Energy Best Ideas List was up 12.4% compared to the S&P Global Energy Sector ETF up 10.6%. Since its inception in February 2013, the RBC Global Energy Best Ideas List is up 19.3% compared to the S&P Global Energy Sector ETF at 1.8%.
We screened the list for the companies paying the best dividends or distributions. We found four that look like outstanding choices for growth and income accounts looking to add energy but wanting to play it safe.
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Energy Transfer
The top energy master limited partnership is a very safe way for investors looking for energy exposure to be involved. Energy Transfer L.P. (NYSE: ET) owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint in all the major domestic production basins.
The company is a publicly traded limited partnership with core operations that include complementary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquids (NGLs) and refined product transportation and terminaling assets; NGL fractionation; and various acquisition and marketing assets.
Through its ownership of Energy Transfer Operating (formerly known as Energy Transfer Partners), the company also owns Lake Charles LNG, as well as the general partner interests, the incentive distribution rights and 28.5 million common units of Sunoco, and the general partner interests and 39.7 million common units of USA Compression Partners.
Investors receive an 8.09% distribution. RBC has a $23 price objective on the stock, while the Wall Street consensus figure is $21.50. The shares closed on Tuesday at $15.10.
Helmerich & Payne
This large-cap sector leader is perhaps a safer and more conservative play. Helmerich & Payne Inc. (NYSE: HP | HP Price Prediction) is the largest U.S. land driller and provides onshore drilling services primarily in the United States. It also offers land rigs internationally, as well as offshore platform rigs in the Gulf of Mexico.
The company provides drilling rigs, equipment, personnel and camps on a contract basis to explore for and develop oil and gas from onshore areas and fixed platforms, tension-leg platforms, and spars in offshore areas. Its contract drilling business operates through three reportable segments: U.S. Land, Offshore and International Land.
In the past, the RBC analysts have cited that the company has the best U.S. land drilling rigs, the most upgradeable rigs, the best capital structure and a 47-year history of dividend increases.
Investors receive a 5.0% dividend. The RBC price target is $90, but the consensus target is much lower at $66.02. Shares closed at $56.47 on Tuesday.
ONEOK
The volatile price of natural gas over the past year has weighed some on this top energy company. ONEOK Inc. (NYSE: OKE) primarily engages in natural gas transportation, storage and natural gas and NGLs gathering, processing and fractionation in the Bakken, Mid-Continent and Permian. The company recently closed the roll-up of its underlying master limited partnership, ONEOK Partners.
The company has a strong presence in the Oklahoma SCOOP/STACK (NGL gathering/takeaway system, G&P), the Williston Basin (G&P, NGL takeaway) and the Permian Basin (NGL gathering, NGL takeaway, natural gas takeaway), which the RBC team feels provides high-return growth opportunities.
Many on Wall Street remain very positive on the company’s primarily fee-based earnings, which account for 90% of total earnings.
Investors receive a 5.36% dividend. The $70 RBC price objective is in line with the $70.16 consensus target price. Shares were last seen at $70.16.
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Williams Companies
This top energy company is also a solid pick for more conservative accounts. Williams Companies Inc. (NYSE: WMB) is now largely a pure-play domestic natural gas infrastructure company that recently completed the merger with its underlying master limited partnership, Williams Partners.
The company has a lower risk, fee-based business model with some volume sensitivity. Natural gas demand continues to be driven by liquefied natural gas (LNG) exports, power generation and industrial needs. In addition to steady demand growth, Marcellus production and associated gas in the Permian are expected to continue to be primary supply drivers.
Shareholders receive a 5.05% dividend. The RBC price target is $32. The consensus target is $31.89, and shares at $27.35.
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Four outstanding ideas from RBC that are decidedly more conservative. Given the strong and consistent dividends, they offer investors excellent total return potential and a safer way to play energy in 2019.
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