These 5 Cheap Energy Stocks Pay Up To 9.2% Beállítások

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These 5 Cheap Energy Stocks Pay Up To 9.2%



Energy prices have rallied furiously, but they likely have further to go. Oil and gas prices last peaked around 2014 and sunk slowly until the black goo hit negative prices in the spring of last year.

A six-year bear market takes more than 13 months to unwind. Which is why energy dividend stocks remain quite attractive.

Oil and gas stocks are 4% yielding on average, which is nearly a full percentage point more than we can get out of real estate investment trusts (REITs) at the moment. And as I’ll show you in a moment, we can squeeze yields of between 5.0% and 9.2% from “Texas tea” if we know just where to look.

Better yet, the sector represents some of the market’s best values.

Oil and energy stocks alike have been virtually flat over the past two months. The lion’s share of their gains came amid the first quarter’s unbridled optimism over stimulus, vaccines and Americans sprinting out of their homes (and into cars and planes).

Since then, investors have been lulled back to sleep thanks to COVID setbacks, inflation jitters and a stimulus hangover as Wall Street computes the odds of Washington’s next big spending plan making it through Congress.

We dividend fans don’t want to miss what comes next. We remain in the early stages of oil’s latest “crash ‘n’ rally” patterns. You can read more about that here (and learn about an inflation-protected 6.1% yielder to boot), but in short, the cycle looks like this:

Demand for oil evaporates due to a recession. The price of oil crashes.
Energy producers scramble to cut costs. They cut production aggressively.
The economy slowly recovers. Energy demand picks up.
But there’s not enough supply! So, the price of oil climbs and climbs and climbs.
Energy producers bring supply back online, but it takes time to explore and drill. Supply lags demand for years, and the price of oil climbs and climbs.
History is already rhyming. Which means we have at least three or four or five years to go in this energy rally.

This is a two-fold opportunity for income investors. We can collect the super-sized dividends from the still-recovering energy sector, all while locking in what’s setting up to be another two to three years of a supply-and-demand “catchup rally.”

Let’s take a look at five ways to play the space, yielding anywhere between 5.0% and 9.2% at current prices.

Chevron (CVX)

Dividend Yield: 5.1%

Chevron (CVX) is an integrated energy major that does it all: from extracting oil from the earth to providing refined gasoline at the pump, to everything in between.

That’s good. Because scale matters.

Chevron’s sheer size and financial brawn have helped it weather a number of energy scares, including last year’s energy crash and oil’s brief flirtation with (deep!) negative prices. Yes, Chevron did have to cut back on spending—as did virtually every other energy name—but it survived with its dividend intact, and even pulled off a move every Contrarian Outlook reader can appreciate.

It took advantage of bargain-basement prices by snapping up independent energy exploration and production name Noble Energy in an all-stock deal that just recently closed. That move bolsters CVX’s shale operations, providing it with acreage in the DJ and Permian basins.

Chevron is easily one of the “safest” ways to play the energy space, for better and for worse. Its diversified operations (E&P, refining, retail and more) help insulate it from oil-price changes from purer-play firms, and its ample cash flow generation should keep it among the ranks of the Dividend Aristocrats.

The flip side? CVX does yield more than the already generous sector average, but it’s on the lower end of energy’s truly high-yield offerings. Moreover, if oil does have even more mountain to climb, that diversification—specifically in refining, where higher input costs weigh on profitability—means Chevron won’t get as much lift as, say, straightforward oil and gas producers.

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