Top-3 Oil Stocks to Buy for Dividend Increases Ahead of Rising Oil Price
These three high-dividend oil names are poised for long-term growth amid global turmoil and rising inflation.
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Oil prices are at multi-year lows, with WTI crude prices back at $71 per barrel in the United States. However, with the ongoing war in Ukraine and the potential for higher inflation from the impact of tariffs, there is the possibility that 2025 will bring higher oil prices.
The following oil stocks are attractive for dividend investors because of their steady dividend increases along with high-dividend yields as well.
1. Exxon Mobil (XOM)
Exxon Mobil XOM is a diversified energy giant with a market capitalization above $400 billion. In 2022, the upstream segment generated 67% of total earnings while the downstream and chemical segments generated 27% and 6% of total earnings, respectively.
In late January, Exxon reported financial results for the fourth quarter of fiscal year 2024. The company grew its production 0.4% sequentially and benefited from higher gas prices. However, oil prices decreased, primarily due to weakening consumption from China. As a result, earnings per share dipped -13% sequentially, from $1.92 to $1.67.
Management improved its guidance in 2024, expecting meaningful production growth up until 2025 and a much lower breakeven point thanks to the addition of exceptionally low-cost barrels. The 2023 acquisition of Pioneer Natural Resources for $60 billion will boost growth.
As Pioneer was the largest oil producer in Permian, Exxon expects to more than double its Permian output, to 2.0 million barrels per day in 2027. As a result, Exxon now expects to reach production of about 2.0 million barrels per day in the Permian Basin by 2027.
Guyana, one of the most exciting growth projects in the energy sector, is the other major growth project of Exxon. Exxon has more than tripled its estimated reserves in the area, from 3.2 billion barrels in early 2018 to about 11.0 billion barrels now.
XOM has increased its dividend for over 40 years and shares currently yield 3.6%.
APA Corporation (APA)
APA APA explores and produces crude oil, natural gas and natural gas liquids (NGLs) in the U.S., Egypt and the North Sea. It has a market capitalization of $8 billion. In 2023, APA produced about 331,000 barrels of oil equivalent per day (excluding non-controlling interest). In this period, oil, natural gas and NGLs comprised 81%, 12% and 7% of the total revenue of the company, respectively.
The company is extremely sensitive to the prevailing price of oil; much more so than the well-known integrated oil majors like Exxon Mobil and Chevron CVX.
In early November, APA reported financial results for the third quarter of 2024. Its production grew 13% over the prior year’s quarter thanks to the acquisition of Callon Petroleum but the average realized price of oil decreased and the price of natural gas plunged amid high inventories.
As a result, earnings per share decreased -25%, from $1.33 to $1.00, though they exceeded the analysts’ consensus by $0.01.
Future growth will be driven in large part, by acquisitions. For example, in April 2024, APA acquired Callon Petroleum CPE in an all-stock deal valued at $4.5 billion (including debt). APA issued about 70 million shares for this deal.
It also expects to grow its output by about 50% and reap great synergies in the Permian Basin, where Callon Petroleum is present. As both the deal value and the output of Callon Petroleum are roughly 50% of the market cap and output of APA, respectively, we view the deal positively for APA, given expected synergies.
APA is an investment for those who want to benefit from the long-term growth in U.S. shale oil production and the promising potential of the area offshore Suriname. The deposits are near oilfields offshore Guyana where Exxon Mobil has discovered about 11.0 billion barrels of oil in the last five years.
APA currently yields 4.5%.
3. EOG Resources (EOG)
EOG Resources EOG is a crude oil and natural gas company headquartered in Houston, Texas. Founded in 1999, EOG was incorporated as a Delaware corporation after it separated from Enron. EOG Resources is principally engaged in the exploration, development, and production of crude oil and natural gas with reserves in the United States, Canada, Trinidad and China.
EOG has three operating segments split by geographical areas: Crude oil, natural gas and NGLs. Crude oil is the largest segment which accounts for 79% of revenue.
On November 7, 2024, EOG Resources reported its Q3 2024 results. For the quarter, EOG recorded total revenue of $5.97 billion, a slight decrease from $6.03 billion in the second quarter and down from $6.21 billion in Q3 2023. Net income for the quarter was $1.67 billion, translating to earnings per share of $2.95, which was consistent with Q2 2024.
The company generated a solid operating cash flow of $3.0 billion, a significant increase from $2.28 billion in Q2 2023, and produced $1.5 billion in free cash flow. Total expenditure for the quarter were $1.57 billion. EOG’s cash and cash equivalents rose to $6.12 billion, and the company sustained a low debt-to-total capitalization ratio of 11.3%.
Per-unit cash operating costs stood at $10.05 per barrel of oil equivalent, demonstrating efficiency improvements over previous quarters. Management also announced a 7% dividend increase to an annualized payout of $3.90 per share.
The company has a solid dividend history with a about 27% CAGR since 2013. Due to the impressive free cash flow, EOG rewarded shareholders with another $1.50 special dividend per share on Decemebr 29, 2023. This is on top of the $5.80 special dividend announced last year. The current dividend is covered at a $32 WTI oil price.
While the industry has had some challenging times, particularly over the last 12 years, the company has never cut or suspended its dividend, which further cements the directors' commitment to shareholders. In addition, the payout ratio has historically been below 40%, and the company has a long-term debt of $5 billion with a total debt/equity ratio of 0.23. Combined with strong FCF growth, the dividend appears well covered.
EOG yields 3.0%.
At the time of publication, Ciura had no positions in any securities mentioned.