3 Energy Stocks For Dividend Investors

Energy stocks are on a tear. The Energy Select Sector SPDR ETF (XLE) is up 50% in the past 12 months, not including dividends, and has significantly outperformed the broader S&P 500 Index. Of course, the war between Russia and Ukraine, in combination with rising inflation, has caused oil prices to spike.

With U.S. crude oil above $90, it’s a good time for income investors to consider the oil industry. Energy stocks across the sector pay hefty dividends and are growing their dividends thanks to their recent windfall. These 3 energy stocks are attractive for income investors right now.

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Baker Hughes (BKR)

Baker Hughes has operations in more than 120 countries, a market capitalization of $25 billion, and provides integrated oilfield products, services, and digital solutions. In 2021, the oilfield services segment of Baker Hughes generated 47% of its total revenues while the segments of oilfield equipment, turbomachinery & process solutions, and digital solutions generated 12%, 31%, and 10% of total revenues, respectively.

In mid-July, Baker Hughes reported (7/20/22) financial results for the second quarter of fiscal 2022. Its revenue of $5.0 billion rose 4% sequentially. Adjusted earnings-per-share came to $0.11 for the period.

The energy market is recovering strongly from the pandemic right now. The return of the U.S. and global oil production to their long-term growth trajectories will provide a tailwind to the business results of Baker Hughes in the upcoming years, particularly given that oil producers will have to make up for their depressed investment in new projects in the last two years.

Moreover, a major growth driver could be the increasing demand from LNG projects. Overall, we expect Baker Hughes to grow its earnings-per-share at a 14.0% average annual rate until 2027.

Baker Hughes stock currently yields 3%. With a 2022 expected dividend payout ratio of 60%, the dividend appears secure.

Equinor ASA (EQNR)

Equinor ASA, previously named Statoil, is one of the largest European publicly traded oil companies, with a market capitalization of around $116 billion. The company is renowned for building up Norway's wealth, with the country having ownership of ~67% of the company. The ownership interest is managed by the Norwegian Ministry of Petroleum and Energy. While it is primarily a petroleum and gas company operating in 36 countries, Equinor has started diversifying its investments toward renewable energy.

On July 27th, 2022, Equinor reported its Q2-2022 results for the period ending June 30th, 2022. Total revenues for the quarter were $36.5 billion, 108% higher than in Q2-2021. The increase in revenues reflects both the rebounding demand for energy that had previously been depressed by the COVID-19 pandemic as well the skyrocketing commodity prices in the energy sector following the ongoing invasion of Ukraine. The company’s liquids and gas production was 1,984 mboe/day during Q2, relatively stable year-over-year.

For the quarter, the company reported a net income of $6.8 billion, compared to a net income of $1.9 billion a year ago, reflecting the top line’s steep increase as well as improving margins amid elevated commodity levels. On a per share basis, net income came in at $2.12 compared to $0.60 in the comparable period last year.

EQNR stock yields 2%.

Devon Energy (DVN)

Devon Energy Corporation is an independent energy company engaged primarily in the exploration, development, and production of oil, natural gas, and NGLs.

The focus that the management team has in strengthening the balance sheet and returning capital to investors, rather than re-invest into the business at what is clearly the top of an oil cycle means that Devon Energy is well prepared for any downturn in the foreseeable future and will likely survive another oil price crash.

In the 2022 second quarter, the company reported revenue of $5.63 billion which rose 133% year-over-year and beat estimates by $880 million. Adjusted earnings-per-share of $2.59 beat estimates by $0.22 per share. Devon raised its full-year production forecast by 3%, now expecting production of 600,000 to 610,000 barrels of oil equivalents per day.

The company has a unique dividend policy. It pays a “fixed-plus-variable” dividend, where the goal is a regular fixed dividend along with a supplemental payout when profits are high. The company recently increased its fixed-plus-variable dividend for the quarter. On an annualized basis, the recent quarterly payout represents a yield above 10%, of course, it should be noted that the variable component of the dividend may not be as high if oil prices decline.

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