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Slumping Integrated Energy Stocks Post Attractive Dividend Yields


Dec. 21 2018, Updated 3:31 p.m. ET

Integrated energy stocks’ dividend yields

Integrated energy stocks have slumped in the current quarter, raising their dividend yields. Perhaps it’s the right time to review which stocks have fared better than others.

In this series, we’ll rank the six leading integrated energy stocks based on their dividend yields.

Royal Dutch Shell (RDS.A) occupies the top spot followed by BP (BP) and Total (TOT). These top three stocks have dividend yields of over 5% each. The company with the lowest dividend yield is Suncor Energy (SU). All of the above stocks except for Shell have increased their dividend payments in the past few years. Shell’s dividend payment has stayed stable. We’ll review further details later in the series.

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Valuation and dividend yield screening

The average forward PE of these stocks is 11.0x. Usually, investors look for undervalued stocks with high dividend yields. Shell’s valuation is below the average forward PE. BP, Total, and Suncor are also trading below the average forward PE.

Of the four stocks with lower valuations, Shell seems to be attractively placed, as it has the highest dividend yield and below-average valuations. BP and Total also look well positioned with their lower valuations and higher dividend yields. Moreover, BP’s and Total’s dividends have risen in the past few years.

Comparatively, ExxonMobil (XOM) and Chevron (CVX) have higher valuations and lower yields.

What to consider

While screening securities in terms of valuations and dividend yields, investors should also consider the fact that valuations vary, as they factor in growth expectations and financial strength (in terms of debt and cash flows).

For instance, BP has the second-highest growth expectation but also has an above-average total debt-to-total capital ratio. Analysts expect BP’s EPS to rise 95% in 2018, but the company has a total debt-to-capital ratio of 38%—higher than the industry average, denoting a relatively weak financial position.

Chevron, which commands a premium valuation, has the highest growth expectation (121% in 2018) and the second-best debt position (total debt-to-total capital ratio of 19%) in the industry.

We’ll discuss more about these factors from the next article onward, starting with Shell.


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