The rise in oil prices in the past few months has awakened the energy sector. With WTI crude prices back at $90 per barrel in the United States, profitability is rising for the major oil producers.
The sector offers a wide variety of ways to gain exposure to rising oil prices, from those that explore for oil to those that process it to those that ultimately sell it to consumers in various forms. In this article, we’ll look at three attractive oil stocks to buy with oil prices at $90 that also have solid yields and dividend safety.
3 Oil Stocks to Buy
Exxon Mobil (XOM)
Exxon Mobil (XOM) is a diversified energy giant with a $400+ billion market capitalization and is the first oil stock to buy. In 2022, the upstream segment generated 67% of total earnings, while the downstream and chemical segments generated 27% and 6%, respectively.
In late July, Exxon Mobil reported (7/28/23) financial results for Q2 fiscal year 2023. Its production in Permian and Guyana rose 20%, to a new all-time high, but its total production fell -3% over the prior year’s quarter. Moreover, oil and gas prices moderated off their blowout levels. As a result, Exxon saw its earnings-per-share plunge -53%, from $4.14 to $1.94.
However, as long as producers remain cautious, the price of oil will likely remain elevated. Oil prices are likely to remain above average in the short run, primarily thanks to several production cuts implemented by OPEC+.
Growth and Dividend
Moreover, Exxon Mobil increased its dividend by 3% in the fourth quarter and extended the dividend growth streak to 40 years. The firm also has a $30 billion share repurchase program for 2022-2023, boosting earnings-per-share growth. This amount can lower the share count by 7% at current stock prices.
Future growth for Exxon Mobil will come from a few select projects. The company expects 3% annual production growth until 2025 and a much lower breakeven point thanks to the addition of exceptionally low-cost barrels. Exxon Mobil has roughly 10 billion barrels of oil equivalent (bboe) in the Permian Basin and anticipates reaching production of over 1.0 million barrels per day by 2025.
Guyana, one of the most exciting growth areas in the energy sector, is the other major project for Exxon Mobil. The company has more than tripled its estimated reserves in Guyana, from 3.2 billion barrels in early 2018 to about 11.0 billion. Management has indicated that 90% of new reserves have a production cost of $35 per barrel. Thus, it sees the dividend as viable at Brent prices above $45. XOM currently yields 3.1%.
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Chevron Corporation (CVX)
Like Exxon Mobil, Chevron is an integrated oil and gas major in the United States. It is a Dividend Aristocrat with over 30 years of consecutive dividend increases. It is the second oil stock to buy.
In the 2023 second quarter, its production grew 2% over the prior year’s quarter thanks to 11% production growth in the Permian, to a new all-time high. Refining margins remained near record levels because of Western countries’ sanctions on Russia, but oil and gas prices fell sharply.
Growth and Dividend
Future growth for Chevron will be based primarily on its prized assets in the Permian Basin and Australia. The firm has more than doubled the value of its assets in the Permian Basin in the last four years because of new discoveries and technological advances. In addition, due to the high grading of its asset portfolio, Chevron can pay its dividend with an oil price as low as $40 per barrel.
Another catalyst for Chevron’s earnings-per-share growth is its aggressive share buybacks. Chevron has announced an enormous share buyback program of $75 billion, enough to lower the share count by 25%.
Chevron has raised its dividend by 6.0% in each of the last two years and is likely to keep growing its dividend in the upcoming years, albeit at a modest pace. As a commodity producer, Chevron is susceptible to an oil price downturn, particularly given that it is the most leveraged oil major to the oil price.
The oil major issued debt in 2020 to defend its dividend amid the pandemic, but it has recovered strongly from that crisis, and the payout ratio has become sustainable again. CVX stock currently yields 3.6%.
Related Articles About Chevron on Dividend Power
TotalEnergies SE (TTE)
TotalEnergies is an integrated oil and gas company operating worldwide and the third oil stock to buy. The energy giant operates through four segments: Exploration & Production; Integrated Gas, Renewables & Power; Refining & Chemicals; and Marketing & Services. Through these segments, TotalEnergies runs the entire crude oil lifecycle, from finding it to harvesting it to refining it and ultimately distributing it to end users. Total Energies is a truly integrated energy giant that owns each step of the process.
In late July, TotalEnergies reported (7/28/23) financial results for the second quarter of fiscal year 2023. Its production grew 2% over the prior year’s quarter thanks to the ramp-up of some projects, but oil prices moderated, and gas prices plunged off last year’s blowout levels. In addition, refining margins moderated, and thus earnings-per-share declined -47%, from $3.75 to $1.99. TotalEnergies has repeatedly stated that its dividend is sustainable at Brent prices of around $40, and its breakeven oil price is below $25.
Growth and Dividend
The company has returned to a solid growth trajectory. It grew its output by 8% in 2018 and 9% in 2019. TotalEnergies reduced its output by 5% in 2020 due to the pandemic and the resultant OPEC production cuts, -2% in 2021 due to maintenance activity, and -2% in 2022 due to the end of some projects. However, thanks to the strong recovery of the energy market from the pandemic, TotalEnergies is likely to resume growing its output this year.
Future growth is likely for TTE, thanks mainly to a massive recent discovery. In 2022, TotalEnergies reported a significant discovery of oil and gas offshore Namibia. According to a report, the find could exceed 13 billion barrels, and thus, it could be the largest deep-water oil field in the world. TotalEnergies stated that it will provide details at a later time. If TotalEnergies share is at least 6 billion barrels, the new find will be worth at least $100 billion. For context, the company’s entire market cap is $160 billion, meaning the discovery could present significant upside potential for TTE stock. TTE stock yields nearly 5%.
Disclosure: No positions
Related Articles on Dividend Power
- A Through Comparison of Exxon Mobil (XOM) vs. Chevron (CVX)
- The 3 Highest-Yielding Dividend Aristocrats in 2021
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Bob Ciura is President of Content at Sure Dividend. Bob has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. Bob received a bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.