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Oil Explodes Higher on Surprise Russian Production Cut: 7 'Strong Buy' Big-Dividend Stocks to Buy Now
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Since topping out at $120 a barrel back in the summer of 2022, the major oil benchmarks traded down every month until bottoming in the beginning of December. The decline from the top in June of 2022 was a staggering 40%, and while the oil majors still can make money at that level, with a declining price many opted to slow or halt production. Thanks to a move by the Russians last week, the party of higher oil pricing in 2023 may just be getting started.
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Oil jumped last Friday when the Russian Deputy Prime Minister announced that the country would be cutting production by 500,000 barrels per day beginning in March. In response, OPEC said it had no plans at this time to respond to the very surprising move by Russia. The Russian production component is tied to the possibility of an increase in demand from China that could spike prices in a big way, especially with the impending peak usage and summer driving season.
We screened out 24/7 Wall St. energy research universe looking for stocks that were rated Buy, that come with large and dependable dividends, and that have solid upside to the posted price targets. Seven top companies came up, and all make sense for growth and income investors looking to add energy. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Coterra Energy
This company was formed by the closing of the $17 billion merger of Cabot Oil & Gas and Cimarex Energy in 2021. Coterra Energy Inc. (NASDAQ: CTRA) is an independent oil and gas company engaged in the development, exploration and production of oil, natural gas and natural gas liquids (NGLs) in the United States. It primarily focuses on the Marcellus Shale, with approximately 177,000 net acres in the dry gas window of the play located in Susquehanna County, Pennsylvania.
The company also holds Permian Basin properties with approximately 306,000 net acres and Anadarko Basin properties located in Oklahoma with approximately 182,000 net acres. In addition, it operates natural gas and saltwater disposal gathering systems in Texas. The company sells its natural gas to industrial customers, local distribution companies, oil and gas marketers, major energy companies, pipeline companies and power-generation facilities.
As of December 31, 2021, it had proved reserves of approximately 2,892,582 thousand barrels of oil equivalent, which include 189,429 thousand barrels of oil and other liquid hydrocarbons, 14,895 billion cubic feet of natural gas and 220,615 thousand barrels of NGLs.
Investors receive a 9.93% dividend. Mizuho’s $41 target price on Coterra Energy stock is well above the $30.79 consensus target. The shares closed on Friday at $25.07 apiece.
Devon Energy
This may be one of the best value propositions in the sector, and it was one of the first to utilize a variable dividend strategy. Devon Energy Corp. (NYSE: DVN) is an independent energy company that primarily engages in the exploration, development and production of oil, natural gas and NGLs in the United States and Canada.
Devon Energy operates approximately 19,000 wells and also offers midstream energy services, including gathering, transmission, processing, fractionation and marketing to producers of natural gas, NGLs, crude oil and condensate through its natural gas pipelines, plants and treatment facilities.
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Production is weighted toward crude oil while growth opportunities are liquids focused, anchored by the Delaware Basin, SCOOP/STACK, Eagle Ford Shale, Canadian Oil Sands, and the Barnett. Devon also owns equity in the publicly traded midstream master limited partnership (MLP) EnLink.
Shareholders receive an 8.96% dividend. Raymond James has a Strong Buy rating and an $80 target price. Devon Energy stock has a consensus target of $75.83, and shares closed over 5% higher on Friday at $63.54.
Diamondback Energy
This red-hot energy play looks poised to press higher again. Diamondback Energy Inc. (NASDAQ: FANG) is an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional and onshore oil and natural gas reserves in the Permian Basin in West Texas and New Mexico.
Diamondback Energy primarily focuses on the development of the Spraberry and Wolfcamp formations of the Midland basin, as well as the Wolfcamp and Bone Spring formations of the Delaware basin, which are part of the Permian Basin. As of December 31, 2021, the company’s total acreage position was approximately 524,700 gross acres in the Permian Basin, and estimated proved oil and natural gas reserves were 1,788,991 thousand barrels of crude oil equivalent.
The company also holds working interests in 5,289 gross producing wells, as well as royalty interests in 6,455 additional wells. In addition, the company owns mineral interests in approximately 930,871 gross acres and 27,027 net royalty acres in the Permian Basin and Eagle Ford Shale, and it owns, operates, develops and acquires midstream infrastructure assets, including 866 miles of crude oil gathering pipelines, natural gas gathering pipelines, and an integrated water system in the Midland and Delaware Basins of the Permian Basin.
Diamondback Energy stock comes with a 6.33% dividend. The Piper Sandler target price is $214, while the consensus target is $178.82. Friday’s $149.29 close was up over 5% on the day.
Energy Transfer
This top MLP is a very safe way for investors looking for energy exposure and income. 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 complimentary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, NGL and refined product transportation and terminalling 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.
The company pays out a 9.50% distribution. The $18 Morgan Stanley price target exceeds the consensus target of $16.50, and Energy Transfer stock closed on Friday at $12.84.
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Northern Oil and Gas
We have covered this stock since it traded in the single digits, and it is an outstanding small-cap value idea. Northern Oil & Gas Inc. (NYSE: NOG) is an independent energy company engaged in the acquisition, exploration, exploitation, development and production of crude oil and natural gas properties in the United States.
The company primarily holds interests in the Bakken and Three Forks formations in the Williston Basin of North Dakota and Montana. As of December 31, 2020, it owned working interests in 6,640 gross producing wells and it had proved reserves of 122,632 million barrels of oil equivalent.
During the fourth quarter of 2022, severe weather affected production volumes in the Williston and Permian Basins. The company estimates that its December production was impacted by approximately 10,000 barrels of oil equivalent per day, with the Williston Basin accounting for approximately 82% of the reduction and the Permian representing approximately 18%. Despite weather-related outages, the company expects total 2022 production in the range of 75,250 to 75,550 barrels of oil equivalent per day, in line with prior guidance.
The dividend yield here is 4.00%, after the recent increase by 9%. Northern Oil and Gas stock has a Strong Buy rating at Raymond James. Its $50 target price compares with a $47.08 consensus target and a $34.11 close on Friday, which was up 6% for the day.
Pioneer Natural Resources
Many Wall Street analysts love this stock as a pure crude oil play, and the company also employs a variable dividend strategy. Pioneer Natural Resources Co. (NYSE: PXD) operates as an independent oil and gas exploration and production company in the United States.
The company explores for, develops and produces oil, NGLs and natural gas. It has operations in the Midland Basin in West Texas. As of December 31, 2021, the company had proved undeveloped reserves and proved developed non-producing reserves of 130 million barrels of oil, 92 million barrels of NGLs and 462 billion cubic feet of gas, and it owned interests in 11 gas processing plants.
Pioneer production services are supported by 100 well-servicing rigs, more than 100 cased-hole, open-hole and offshore wireline units, and a range of advanced coiled tubing units.
The company is a huge player in the Permian basin and the Eagle Ford in Texas, and it owns more than 20,000 locations in the world’s second-largest oil reservoir in the Midland Basin. With a stellar balance sheet, the company is poised to remain a top player in the Permian, as it expects to deliver solid production growth going forward.
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Pioneer Natural Resources stock investors receive a 10.99% dividend, although that could change due to the variable dividend strategy. Raymond James has a Strong Buy rating here too. Its $300 target price is above the $272.71 consensus target. Friday’s close at $231.39 was up over 4% for the day.
TotalEnergies
This French integrated giant is another great way to play an energy rally from the European side. TotalEnergies S.E. (NYSE: TTE) operates as an integrated oil and gas company worldwide. Its Exploration & Production segment engages in oil and natural gas exploration and production activities in approximately 50 countries.
The Integrated Gas, Renewables & Power segment engages in the LNG production, shipping, trading and regasification activities; trading of liquefied petroleum gas (LPG), petcoke and sulfur, natural gas and electricity; transportation of natural gas; electricity production from natural gas, wind, solar, hydroelectric and biogas sources; energy storage activities; and development and operation of biomethane production units, as well as provides energy efficiency services.
The Refining & Chemicals segment refines petrochemicals, including olefins and aromatics; and polymer derivatives, such as polyethylene, polypropylene, polystyrene and hydrocarbon resins, as well as biomass conversion and elastomer processing. This segment also engages in trading and shipping crude oil and petroleum products.
The Marketing & Services segment produces and sells lubricants; supplies and markets petroleum products, including bulk fuel, aviation and marine fuel, special fluids, compressed natural gas, LPG and bitumen; and provides fuel payment solutions. It operates approximately 15,500 service stations.
Shareholders receive a 4.65% dividend. BofA Securities has set a $92 price target. The consensus target is $72.39. TotalEnergies stock ended Friday trading at $63.73 a share.
Regardless of the ongoing climate change rhetoric, the demand for oil is steady, and it could be ready to explode higher as 2023 progresses. These top companies are well positioned for the demand challenges and their shares could be among the best investment ideas for this year and beyond.
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