The oil industry is starting to look like one of its best years in quite some time. Oil prices rebounded sharply as the global economy recovered from the pandemic and producers maintained a tight cap on supplies. These strong market conditions should continue into 2022 and beyond because the world needs oil despite its shift towards cleaner energy sources.
With this background, we have asked some of our Fool.com contributors to own their preferred stock of oil in 2022 and beyond. Here’s why they chose it total energy (NYSE: TTE)And ConocoPhillips (NYSE: COP), And Devon Energy (NYSE: DVN).
Robin Gregg Brewer (total power): If you are looking for an oil stock, you can use a pure theatrical exploration and production name. Or, if you’re a bit more conservative, you could potentially choose an integrated energy company with assets spanning from drilling (upstream) to refining and chemicals (downstream). I’m conservative, so this is my favourite. But there is more to the story here because some of the major oil companies, such as ExxonMobil (NYSE: XOM) And chevron (NYSE: CVX) They stick to the oil patch, while others, like my favorite, total energy (NYSE: TTE)They are looking to slowly shift their portfolios toward clean energy.
TotalEnergies is not alone; Peers Royal Dutch Shell (NYSE: RDS.B) And BP (NYSE: BP) They also use their oil profits to fund clean energy investments. However, among this trio, only TotalEnergies goes this route without deducting profits. And it’s not giving up oil and natural gas, with the goal of growing its energy business (with a shift toward cleaner-burning natural gas) and its “electronics” business at the same time. This allows me to own a growing energy company and a growing renewable energy business with one investment.
Meanwhile, I am collecting an industry-leading 6% dividend yield while this diversified oil company wisely adapts to the world around it. It’s kind of a gambling option but it allows me to sleep well at night in a sector that is prone to volatility at the best of times and today is facing an existential crisis.
Return unexpected profits to investors
Matt Dillallo (ConocoPhillips): Oil giant ConocoPhillips has taken several steps in recent years to cut costs to generate more cash flow. Her last move was possession seashellsIts assets are in the Permian Basin to boost its size in that low-cost oil basin. This strategy pays big profits for investors.
ConocoPhillips expects to return $7 billion to shareholders in 2022. That’s 16% higher than last year’s total. I have developed a three-tiered program to return funds to investors:
- Basic Quarterly Dividend: ConocoPhillips increased its quarterly profit Dividend increased 7% to $0.46 per share late last year. At the current share price, the profit return It is 2.4%, nearly double that of Standard & Poor’s 500. At the current rate, the company will pay out $2.4 billion in dividends this year.
- Repurchase share: ConocoPhillips expects to buy back $3.5 billion of its stock this year, financing $1 billion through the sale of its remaining stock in Synovos Energy.
- Variable Return of Cash: ConocoPhillips plans to distribute approximately $1 billion in additional cash to shareholders through a variable cash return. It expects to make those payments quarterly, with the first payment set at $0.20 per share.
Overall, ConocoPhillips expects to return more than 30% of its projected cash flow to shareholders in 2022 and expects to achieve low single-digit production growth in 2022. The remainder of its funds will be allocated to expanding its operations, reducing emissions, and maintaining a top-tier balance sheet. This focus on increasing cash flow and returning it to shareholders is why ConocoPhillips is my favorite stock of oil to own for years to come.
Profits that outperform the industry
Neha Kol (Devon Energy): Devon Energy began paying the first fixed plus variable dividend in the oil industry in 2021. The company has adopted a policy of increasing its fixed dividend with a special dividend equivalent. The amount is up to 50% of the cash flow remaining after capital expenditures and fixed dividends are paid in any quarter. The dividend policy has helped greatly in boosting shareholder returns last year; The company paid $1.97 in total dividends per share in 2021 versus $0.68 per share in 2019.
Shareholders can continue to expect strong returns from Devon Energy this year. The thing is, oil prices are holding up at the moment thanks to multiple factors, including supply disruptions from Libya as the country put major pipelines under repair and force majeure on oil exports. Also, OPEC is committed to its plan to only gradually increase oil production per month. This is good news for Devon Energy shareholders because the company’s cash flows, and therefore variable dividends, depend on oil prices.
Even if oil prices were to drop, Devon Energy is still on solid footing, beginning 2021 by merging all shares with WPX Energy and then using the rest of the year to pay down debt and bolster its balance sheet. With the price of West Texas Intermediate (WTI) crude at $75 a barrel, Devon Energy expects its cash flow to increase by more than 35% in 2022. At this pace, its total earnings could grow by nearly 80% this year through 2021. That’s huge. and, when combined with the latest oil stock buyback program, can translate into strong returns for shareholders.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.