Since June 2014, the price of a barrel of oil has taken a bit hit. When such things happen, the stock market reacts quickly and penalizes companies in this industry. We saw what happened back in 2008 with banks, this time, the oil industry is hit. But there is a very good news coming with any stock drop; the dividend yield soars higher. This might be the opportunity you are looking for to buy cheap shares of high yielding dividend stocks. I’ve pulled out 11 oil industry companies paying over 4% in dividend yield.
Canadian Market
ARC Resources (ARX.TO) 5.11%
ARC explores and produces oil & gas in Western Canada. Recently, there have been 5 insiders’ purchases since the stock price dropped. This could be an indication that insiders believe that oil will bounce back and this could be the perfect time to fill their portfolios with cheap shares. However, ARC recently cut their exploration budget by almost 15% (from $875M to $750M).
Bonterra Energy (BNE.TO) 4.17%
Bonterra was among the first Canadian energy companies to cut their dividend (from $0.30/share to $0.15/share). Following my 7 investing rules, this stock was automatically taken off our DividendStocksRock Portfolios. Ironically, the stock was added a few days after to the S&P Canadian dividend aristocrats list. I guess they will take if off promptly. Keep in mind that Bonterra pays a monthly dividend that could vary depending on the price of oil. Therefore, the dividend could bounce back in a few months. Still, this is not my favorite pick from this list.
Baytex (BTE.TO) 5.16%
Baytex experienced a similar situation to Bonterra and cut their dividend by 60% back in December. They also cut their exploration budget by 30% for 2015. Baytex ran out of luck with the Eagle Ford transaction as they tried to make a strategic move and acquire a US shale company. A few month after, oil prices dipped and Baytex is left with a sour taste it its mouth. Funds from operations (FFO) could drop by as much as 50% in the upcoming year. This is why the company protected its cash flow by cutting their budgets and dividend payouts. This is a sign of good management, now we have to wait and see if the company can continue through the storm without further damage.
Bonavista (BNP.TO) 5.84%
Bonavista holds working interests and operator status on its acreage holdings. This allows the company to control its growth and exploration. The latest quarter shows impressive production and productivity levels. BNP may benefit from this productivity gained as oil prices remain low.
Calfrac Well Services (CFW.TO) 5.69%
Calfrac is a relatively small company specialized in oilfield services such as hydraulic fracturing, coiled tubing and other well completion services. Its business model is linked directly to the price of oil. Technically, as long as the barrel is below $55-60, CFW will have trouble finding growth as most exploration budgets will remain minimal. The company has a great client base, well diversified and operates world class equipment in a very specialized market. However, as long as oil prices remain low, its revenues and earnings will be greatly affected (looking for a good drop in 2016 as part of 2015 is already secured with existing contracts).
US Market
BP (BP) 5.80%
BP has underperformed other oil integrated companies such as Chevron (CVX), Exxon Mobil (XOM) and Royal Dutch Shell (RDS.B) over the past 12 months. This might make it a better play. However, there is a reason why the stock has dropped more than others; BP includes some additional risk such as their participation in Russian oil production and the uncertainty of the ongoing 2010 Gulf of Mexico spill trial. Investors will have to be patient and wait until the trial is settled before they can see the stock gaining some appreciation.
Helmerich & Payne (HP) 4.31%
You have read much ink regarding HP on this blog so I won’t ramble too long this time. HP is a leader and world class drilling company. The only problem right now is the price of oil. If I could, I would have probably added more shares at the moment.
Royal Dutch Shell (RDS.B) 5.38%
Back in the 90’s, Shell under invested compared to its peers and it suffered from this decision until recently. In 2004 they started an aggressive investment program and finally show strong cash flow in the past few years. This is why the company is not going to stop spending even in a tougher market. It will continue their long term vision. This could be the best strategy for now.
Sunoco (SUN) 4.23%
How about finishing with an MLP? Sunoco distributes fuel across America and shows interesting fundamentals. Since it makes their money distributing the fuel, its stock hasn’t been affected by the current situation. Sunoco announced a 10% increase of their distribution on February 2nd.
Which one is your favorite?
My favorite is definitely HP (but I own shares of it already). Then, I must think of Calfrac Wells Services. It shows greater risk due to its business model and market cap but it could boost your portfolio in a serious manner if oil prices shoot back up.
Disclaimer: I hold shares of HP & BDI.
BNE.TO was sold in our DividendStocksRock portfolios.
I’m long COP, BP, CVX and RDS. Paid to wait.
Hello Adam,
did you buy them recently? I hope for you 🙂
Adam – if you don’t mind sharing, what were your cost basis for your purchase on COP, BP, CVX, and RDS? Thanks.
I think nov. Even though dividend only 3.5% is a good pick… It fell more then peers
Umm Bonterra Energy Corp (BNE) graph beside Bonavista (BNP)?
Is that an oops or did I miss something?
(long BNP, and liking it)
Good point Fred,
I just put the right graph, thx!
Mike
Thru the oil massacre I only held onto Exxon and the Canadian pipelines IPL and Pembina PPL. My thoughts were that the pipelines even tho falling in price did not make a lot of sense as they carry their loads thru’ thick and thin and usually have long term contracts . They have been coming back up in share price ,but ever so slowly. G