With the very best CD rates paying near 2.75% APY, and a 30-year Treasury at 2.85%, we set out to see if we could find any energy stocks that looked like they could provide a bit more of a return with a semblence of safety. We chose energy stocks because they are among some of the most profitable comapanies in the world and they generally pay out steady and reliable dividends.
Our search started with Exxon Mobil, the only one of the major energy companies to have a AAA credit rating (higher than the US government). Using that as our starting point, we analyzed four different energy stocks to see which, if any, could provide a decent safe return. Remember though, that owning stocks means that unlike FDIC insured savings accounts or CDs, there is a chance for losing principal.
The four companies we analyzed were: Exxon Mobil (XOM), paying a 2.37% dividend, Chevron (CVX), paying a 3.24% dividend, Royal Dutch Shell (RDS.A), paying a 4.83% dividend, and Total (TOT), paying 6.70%. That total 6.70% yield sure looked juicy and I personally hoped it would make the cut.
I looked at the performance of each stock over the past five years and then factored in all dividend payments made during that period to arrive at a post-dividend return. Here's what I found:
|Exxon Mobil||Royal Dutch Shell||Chevron||Total|
|5-Year Stock High||$93||$86||$109||$90|
|Current Stock Price||$80||$70.51||$100||$47.29|
|Dividends Paid Out||$8.27||$7.24||$12.28||$15.22|
|Dividends + Current Stock Price||$88.17||$77.75||$112.28||$62.51|
|Total % Return||-5.19%||$-18.01%||3.01%||-47.46%|
Three companies posted a negative investment return over the past five years. Only Chevron posted a positive return. That's to be expected since the general market has not recovered to its pre-2008 crash highs. But I was surprised to see how much better Chevron did than even Exxon Mobil. It has a positive return, its stock is close to its 52-week high, and it is paying a higher dividend. While Total currently has that juicy dividend, investors have not done well over the past five years. In fact, Total cut its dividend in 2010 from $1.61 per share to $0.81 today. Both Chevron and Exxon Mobil have consistenly increased their dividends over the past five years.
I also like the future focus for many energy companies, especially a domestic one like Chevron. With huge shale and gas deposits being found in the US and Canada, the major oil companies are shifting their exploration away from the Middle East and other geo-political hot-spots and towards more domestic supplies. The Wall Street Journal recently published an article called Big Oil Heads Home.
"The majors went to Venezuela and lost their property," says Ms. Myers Jaffe of the Baker Institute. "They went to Russia and had to whisk their CEO off to a safe house. They went to the Caspian and realized they couldn't get the oil out. I for one would much rather invest in a company that had 70% of its spending in the OECD."
Both Exxon Mobil and Chevron are moving aggressivly to identify and develop reserves in more stable parts of the world. I think that stability in reserves will pay off in a stability in returns.
Based on yield, historical performance, and future prospects, Chevron is the dividend paying oil stock for the safe investor. If you want to diversity a bit, then a mix of Chevron and Exxon Mobil might be a good move for someone who wants a steady return from a generally steady sector.