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5 Energy Opportunities for Solid Dividends

March 02, 2012 | About:

With so many threatening headlines dealing with the Middle East, it’s easy to lose sight of the fact that vast energy resources exist in many parts of the world, and oil is not the only source. North America is home to extensive reserves of both oil and natural gas, as are countries with emerging economies clamoring to become productive sources of world energy. Some sources are more difficult to access, either below the ground, in shale or off shore, and each has its unique problems, but companies with multinational operations that are developing different resources provide diversification that can – if not eliminate investment risk – at least even out the ups and downs while paying investors cash dividends. Here are five companies worth considering if you are seeking a combination of growth and income.

Shares of Chevron Corporation (NYSE:CVX) closed recently over $106 a share, near the upper end of their 52-week range of $86.68 - $110.99. The stock’s yield was 3.0% on annual dividends of $3.24; the price earnings ratio was 8%, which is relatively modest compared to its major competitors. The company had a weak fourth quarter, reflecting high international taxes and other non-exploration expenses. However, it has increased its dividend to shareholders each year for the past 24 years and has a strong balance sheet. The second largest oil company in the United States, Chevron is active in more than 180 countries, but faces litigation involving pollution and oil spills in the United States, Brazil, Ecuador, Angola and Nigeria – a heady case lode. Despite fourth-quarter problems, full-year earnings were up 41% in 2011 to $13.44 per share (diluted), compared to $9.48 (diluted) in 2010. The company’s minimal debt and broadly diversified operations make it an attractive opportunity for growth-oriented investors.

ConocoPhillips (NYSE:COP) is about to become a tale of two stocks. Its impending split, announced last year, will be finalized in the second quarter of 2012, giving investors a choice of a refining and marketing business (Phillips 66) or an exploration and production company (Conoco) – each with an attractive dividend but separate, clearly defined operating areas. The marketing and refining business is more closely tied to the price of oil and less capital intensive than the production side, but the latter may move at a steadier pace. The pre-split stock closed recently at $75 a share, near the top of its 52-week range of $58.65 - $81.80, on the heels of a long run-up following the announcement of the split in July. Its price earnings ratio was 8%, on earnings of $8.98 per share, with a yield of 3.5% on annual dividends of $2.64. Management plans to divvy up the dividend in accordance with the terms of the split – one share of Phillips 66 for every two Conoco shares. Post-split Conoco and Phillips shareholders can both anticipate sustainable dividend growth. ConocoPhillips recently agreed to sell its Vietnam business for $1.29 billion as part of its plan to trim operations and create shareholder value, selling off $15-20 billion in assets, according to Al Hirshberg, Conoco senior vice president of planning and strategy. Investors who have a preference can either buy before the split date and divest one or the other unit, or wait and scoop up the business they prefer. Both strategies have merit.

One of Italy’s largest industrial companies, Eni S.p.A. (NYSE:E) has operations in more than 80 countries and participates in joint ventures with companies in Russia, Venezuela, Poland and Europe. It sustained a loss in production in Libya in 2011, but was recently was able to resume activities there and was buoyed early in 2012 by a major new gas offshore discovery in Mozambique. The stock closed recently below $46 a share, with a price earnings ratio of 10% and a yield of 6.14% on annual dividends of $1.40 and earnings of $4.97. Its 52-week price range was $32.44 - $53.80. Although exploration and production activities in 2011 were generally positive, operating profits for the fourth quarter and the year were down, partly due to the situation in Libya, but also as a result of weak demand in Europe and competitive pressures across the board. In February, Moody’s Investors Service lowered Eni’s long-term credit rating to A2 (negative), in line with Standard & Poor’s A rating, but the company believes it has adequate capital to finance current and proposed projects. Given the economic crisis in Europe, seek other alternatives.

Exterran Partners LP (EXLP) recently announced that it will increase its dividend for the sixth consecutive quarter, even though earnings have been sliding. The stock closed recently over $23 per share, above the mid point in its 52-week range of $17.50 - $31.35. The yield per common share was a heart-warming 8.4% based on $1.97 in annualized dividends, but earnings were a frosty -0.71. With oil prices currently over $100 a barrel, it seems unlikely that this global provider of natural gas contract services will go out of business anytime soon. However, in June of 2011 Exterran Partners assumed $159 million of Exterran Holdings (EXH) debt and paid $62 million in cash to help Exterran Holdings reduce its debit balance. Exterran Holdings, which owns an equity interest in Exterran Partners, financed the transaction with the proceeds of a public offering of common units and its own revolving credit facility. The stock’s yield is dazzling, but there are better, financially stronger alternatives among energy dividend payers.

A multinational oil giant, Paris-based Total S.A. (NYSE:TOT) has operations in more than 130 countries. As a French business it is more widely welcomed in commodity-rich nations than companies based in other western nations, but its ties with Iran may prove to be a negative, at least in the short term. The stock closed recently at $55, slightly below the middle of its 52-week range of $40 - $64.44, with a dividend yield of 4.5% on 2011 dividends of $2.51 and earnings of $7.20, up from $6.08 in 2010. Relative to its competitors, Total’s price earnings ratio of 7.7% makes it reasonably priced for long-term investors. The company’s debt-to-equity ratio was 23% at year-end, up slightly from 22% one year ago. Management expects to use its strong financial position to expand activities in 2012, which may help Total rise above the eurozone economic crisis. Recent activities included an announcement[/url] that the company had signed three new licenses to explore for oil off the shores of Ivory Coast. The company also has plans to invest up to $24 billion in exploration and production operations in various parts of the world this year and next. Total is a buy in English or in French.

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