Is it a good time to buy oil supplies? The sharp escalation of geopolitical tensions in the Middle East following an attack on Saudi oil facilities and then a peak of $ 12 per barrel in one day make this a tempting bet.
However, nobody can predict where oil will be traded over a month or over a six-month period. Due to the volatile nature of energy markets, betting on oil reserves is only a wise move because oil is trading higher. Today's earnings could be wiped out quickly, causing oil stocks to fall with them.
But for those who want to keep some exposure to oil stocks in their portfolios, the best way to do this is to buy diversified companies with a good history of paying dividends. Shares such as these can help investors to withstand the fall in oil better than the pure oil plays and will of course see a good upward movement if the oil continues to rise higher.
Below are two top stocks of energy that fit well into this strategy.
1. Exxon Mobil: Solid Cash Flows
If you want diversification in the oil and gas room, Exxon Mobil Corp (NYSE 🙂 is your best bet.
The company has an impressive scale in everything from drilling to refining to the American shale region. And while the share is unlikely to generate huge profits for investors, it remains a top choice for energy bulls in the long run.
The multinational oil and gas giant has also taken a forward-looking approach to improving its growth prospects, different from other major producers trying to stabilize their shares by cutting back on major spending.
Exxon & # 39; s CEO, Darren Woods, believes the oil industry needs a significant injection of new investments to meet the new challenges it faces and has launched a plan of $ 230 billion to breathe new life into the company, focusing on drilling opportunities around the world. Guyana nation and developments in Mozambique and Brazil.
Trading at $ 73.17 at the end of yesterday, XOM shares won approximately 7% in 2019 and offer an annual dividend of $ 3.48 per share, with revenues in excess of 4.7 %. With solid cash flows and a diversified portfolio of assets, Exxon Mobil is well placed to take advantage of a possible price increase.
2. Devon Energy: Sharp Focus on Growth
We love Oklahoma City based Devon Energy (NYSE: ) stock to play on American oil strength. The company is transforming its corporate structure to make it a pure shale producer and has made returning excess money to investors the most important priority.
As part of his efforts to become a shale-focused growth company, Devon has released more than $ 30 billion in assets in recent years. In early 2019, Devon sold its Canadian oil sands company for $ 2.8 billion to Canadian Natural Resources Ltd (NYSE :). It also plans to sell Barnett Shale gas assets in North Texas to focus on the US high-yield oil industry.
"The combination of selling higher cost assets and bringing new, lower cost production online, along with our dedication to at least $ 780 million in annual cost reductions, is expected to reduce cash costs per unit by more than 20% by 2021 & # 39 ;, said Jeff Ritenour, executive vice president and chief financial officer.
According to Devon estimates, the producer can grow American oil production mid-teens and at the same time generate positive cash flows if oil is traded at $ 46 a barrel and more.
Devon plans to return surplus money to shareholders through dividend increases and aggressive share buybacks. The company has increased payouts to investors by 50% over the past two years and increased its share buyback to $ 5 billion.
Once completed, this huge share buy-back plan will reduce the company's outstanding shares by 30%. Oil investors love this combination, where companies can be cash flow positive and have a strong preference to reward their investors with dividends. The Devon shares were traded this year at $ 26.68 at the end of yesterday. The company pays a dividend of $ 0.36 per year with an annual return of 1.28%
Bottom Line
Countless short-term factors play a crucial role in determining the direction of the oil markets. But if your investment horizon is long-term, you should focus on those companies that are able to survive the worst economic downturn and still deliver value in the long-term. We think that both Devon and Exxon Mobil fit.
