3 DividendPaying Resource Stocks You Should Buy Now Investment U
Post on: 16 Март, 2015 No Comment
by Sean Brodrick. Resource Strategist, The Oxford Club Friday, March 13, 2015. Issue #2498 Natural Riches
It’s easy to write off resource stocks right now. The energy sector is down 23% from its high last summer, and miners as a group are down about 37% in a little over six months. Ouch!
However, there is a good reason to buy select resource stocks. Specifically, I’m talking about companies that pay juicy dividends and aren’t likely to cut them.
Thanks to pullbacks in the resource sector, these companies are now trading at fire-sale prices. So, you can buy them today and collect the dividends while you wait for resources to go back up.
In a world where the 10-year Treasury yields just over 2.2%, a nice yield and potential growth are nothing to sneeze at.
Here are three examples worth exploring.
Pick No. 1: An Integrated Oil Company
ConocoPhillips (NYSE: COP) is an integrated oil company with a market cap of $79 billion and a recent dividend yield of 4.6%. The company’s stock price is down about 26% since last summer and more than 10% in less than a month. If you’re looking to buy a stock on a bounce, consider it.
Sure, falling oil prices will hurt Conoco’s bottom line. Analysts are expecting EPS of around $0.96 for full fiscal 2015. That’s way down from the $5.30 the company earned in fiscal 2014. Even so, Conoco will be profitable despite low oil prices.
You may be wondering how the company will pay its dividend if earnings fall. It’s true that there’s a $2 difference between Conoco’s expected dividend payout in 2015 ($2.96) and earnings. But the company has more than $4 in cash per share. At current oil prices, ConocoPhillips can support its dividend for two full years without a reduction.
And guess what? ConocoPhillip’s earnings are projected to rise to $3.33 in 2016. That will cover the dividend and then some. Earnings should rise again in 2017. So, if you have the patience to ride out a bad year, you could be richly rewarded with ConocoPhillips.
And here’s an interesting point for dividend investors: ConocoPhillips has historically not cut its dividend during periods of low oil prices. The company has paid dividends for 37 consecutive years without a reduction. Thirty-seven years covers multiple oil price expansions and declines. The dividend grew by 5.8% last year and is expected to grow by an average 4.8% per year over the next three years.
What’s more, Conoco has an average reserve replacement ratio of 153% over the last three years. Production volume grew 4% in fiscal 2014. And production is expected to rise another 2% to 3% this year. This is a well-run company. Exactly the sort you’d want to pick up in tough times .
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Pick No. 2: One of the World’s Biggest Miners
BHP Billiton Ltd. (NYSE: BHP) is an Australia-based miner with a mega market cap of $128 billion. It produces all sorts of minerals — iron, copper, uranium, gold, silver and more, as well as oil and gas. Low oil and metal prices have weighed heavily on the company’s stock.
In its most recent earnings report, BHP said its half-year profit fell 47% to $4.27 billion. However, it beat the $3.6 billion analysts expected, and the market greeted the news positively.
And sure, earnings are expected to fall from $3.94 in 2014 to $2.26 in 2015 and $2.25 in 2016. But in 2017, earnings are expected to jump higher again.
I think BHP is at a cyclical bottom in all sorts of minerals. It has some major projects coming to fruition. As a result, BHP says it remains on track to deliver group production growth of 16% over the two years to the end of the 2015 financial year.
What’s more, the company is planning to spin off several of its non-core assets into a new company named South 32. The South 32 spinoff could unlock value for shareholders in a big way.
In the meantime, income investors can enjoy a yield that’s greater than 5% and will likely continue to grow. Over the past three years, the company raised its dividend an average 3.2%. And it has a policy against cutting its yield.
In fact, it.
It’s fair to say that BHP is committed to not cutting its dividend. That doesn’t mean a dividend cut can’t happen. But the odds favor it at least remaining steady.
So if BHP is reducing spending in shale, its oil production will go down, right? Nope. Even though BHP will reduce its onshore U.S.-operated rig count from 26 to 16 by the end of fiscal 2015, the company said it “remains confident that shale liquids volumes will rise by approximately 50% in the period.
Bottom line: This is one of the world’s biggest miners, it pays a fat dividend, it’s committed to paying the dividend, and many of the commodities it produces seem to be near cyclical bottoms.
Pick No. 3: A Massive Pipeline Operation
Williams Companies (NYSE: WMB) is a Tulsa-based pipeline and energy infrastructure company with a $35 billion market cap. It is the general partner of the newly merged Williams Partners (NYSE: WPZ), which was put together from the “old” Williams Partners and Access Midstream Partners. The now-combined Williams Partners owns about 33,000 miles of pipelines, and transports about 20% of the nation’s natural gas.
Williams Companies recently sported a 4.8% dividend yield. Lower energy prices have scared away some investors, but they should take another look. Even considering low energy prices, that dividend is projected to grow an average 14.7% each year for the next three years. And the expected payout of $2.38 per share this year is up 22% from 2014.
So, if Williams Companies’ share price goes nowhere through 2017 and hits the midpoint of guidance on raising its dividend, it should yield about 6%. Nice!
And despite falling energy prices, U.S. production should only increase. No wonder Williams Companies’ earnings are expected to climb from $0.80 a share in 2014 to $1.14 per share in 2015, then all the way up to $1.43 in 2016.
Of course, Williams Companies, ConocoPhillips and BHP Billiton are just three of the many bargains in resources right now. Do your homework — your due diligence — before you buy anything. But if you’re looking for bargains, look to resources.
