Energy stocks have risen marginally in 2019. Though these stocks have underperformed the market, their dividend yields have outperformed it. In the year, while BP (BP) has fallen marginally, ExxonMobil (XOM), Chevron (CVX), and Royal Dutch Shell (RDS.A) have risen. In comparison, equity markets have touched record highs.
Energy stocks’ performances and dividend yields
ExxonMobil, Shell, and Chevron stocks have risen 1.9%, 0.7%, and 10.2%, respectively, YTD (year-to-date). However, BP stock has fallen 0.8% in the year. In comparison, the S&P 500 Index (SPY) and the Dow Jones Industrial Average (DIA) have risen 28.5% and 22.0%, respectively, YTD.
However, when it comes to dividend yields, energy stocks have outperformed the markets. SPY’s and DIA’s dividend yields stand at 1.7% and 2.1%, respectively. In comparison, BP’s and Shell’s yields stand at 6.5% and 6.4%, and ExxonMobil’s and Chevron’s yields stand at 5.0% and 4.0%, respectively. So, energy stock yields are much higher than market yields. Let’s look at how these stocks are positioned heading into 2020.
BP: The highest dividend-yielding energy stock
BP is the highest dividend-yielding energy stock. Though the stock has fallen marginally in the year, its crude oil and natural gas production have risen. BP stock has declined as the company’s earnings have been hit by lower oil prices, resulting in weaker upstream realizations and earnings.
However, the silver lining was BP’s better hydrocarbon production. In the first nine months of 2019, BP’s oil and gas output rose by 4.2% YoY to 2.6 MMboepd (million barrels of oil equivalent per day).
Wall Street analysts expect BP’s earnings to rise by 14% in 2020. The rise is quite possible with better oil prices and higher hydrocarbon output. Besides, BP has a series of upstream projects under development. By 2021, the company expects 0.9 MMboepd of net new production from its main upstream projects. To learn more, read BP Could Benefit from Recovering Oil Prices in 2020.
BP stock is trading at a 2020 forward PE of 11.2x, lower than the peer average of 14.4x. So, BP stock seems well placed with the highest dividend yield, positive earnings growth, and a low valuation.
Shell has the second-best dividend yield
Shell stock has risen marginally in 2019. Though Shell saw a marginal improvement in its hydrocarbon output, it has a robust pipeline of projects. In the first nine months, Shell’s oil and gas production rose by 0.2% YoY to 3.6 MMboepd. The company expects 0.25 MMboepd of new output from projects that will begin in 2019–2020. Plus, Shell expects 0.30 MMboepd of additional production from the projects that will start up in 2021 and beyond.
Wall Street analysts expect Shell’s EPS to rise 21% in 2020. Shell stock is trading at a 2020 forward PE of 10.7x, below the peer average. To learn more, read Is Shell Better Placed than Its Peers for 2020?
ExxonMobil’s dividend yield touches 5%
ExxonMobil has also seen a decline in its earnings in 2019. However, in the next year, analysts expect the company to benefit from better oil prices and refining conditions.
In 2020, analysts expect oil prices to rise marginally. This should support the company’s earnings. Plus, better refining cracks and oil spreads should help the company’s downstream profits.
In the first nine months, the company’s production rose by 4.1% YoY to 3.9 MMboepd. In 2020, ExxonMobil could see higher production driven by growth in the Permian Basin. In 2020, Wall Street analysts expect the company’s earnings to rise by 42%, the highest among its peers. XOM is trading at a forward PE of 18.4x, the highest among its peers.
To learn more, read ExxonMobil or Chevron: Which Is the Oil Stock for 2020?
Chevron has the lowest dividend yield
Despite Chevron’s lowest dividend yield of 4.0%, its yield stands higher than the market’s. Chevron is the strongest oil company financially despite having faced numerous oil cycles. It had the best debt and cash flow position in the first nine months of 2019.
Further, the company saw record upstream production in the year. Chevron’s production rose by 6.0% YoY to 3.1 MMboepd in the first nine months.
However, now, Chevron is preparing for long-term lower energy prices. The company is high-grading its portfolio by investing in high-return projects and divesting noncore projects. Chevron’s hydrocarbon output growth rate could soften in the next year due to its high production base in 2019. It’s no surprise that analysts expect the lowest earnings growth for Chevron. They expect the company’s EPS to rise 8% YoY in 2020.
Chevron stock is trading at a 2020 forward PE of 17.4x, higher than the average. To learn more about Chevron stock, read Why Analysts Are Divided on Chevron Stock.
Energy stocks have borne the brunt of weaker oil prices in 2019. However, in the next year, oil prices could rise, supporting oil companies’ earnings. Plus, the growth in their oil and gas production could boost their profits. Further, refining conditions are strengthening in anticipation of IMO 2020.
Wall Street analysts expect oil companies’ earnings to rise, on average, by 21% in 2020. These high-dividend-yielding energy stocks seem well placed to greet the next year with a bang.