These Are the Top 5 Upstream Energy Dividend Stocks


Jan. 10 2020, Updated 12:54 p.m. ET

Investors’ preference for top dividend stocks could increase in 2020. The US government’s ten-year Treasury note has a yield of around 1.9%, while the S&P 500 Index (NYSEARCA:SPY) has a dividend yield of 1.7%. Along with dividend income, equities also offer the possibility of price appreciation. There’s also a downside risk to equity investments.

Among sector-specific SPDR ETFs, the Energy Select Sector SPDR ETF (NYSEARCA:XLE) reigns supreme.

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The search for higher yield

Globally, around $17 trillion worth of bonds have negative yields. In 2020, the Fed may not raise interest rates, according to CME’s FedWatch Tool. However, in the event of economic turmoil, the Fed could slash interest rates further. A fall in interest rates could drag on the yields of new fixed income investments. It could also disrupt US investors’ retirement plans. The search for higher yield is important when it comes to achieving financial goals.

Energy has the highest dividend yield

As I mentioned above, XLE has a dividend yield of 4.6%, the highest among sector-specific SPDR ETFs such as the Utilities Select Sector SPDR ETF and the Financial Select Sector SPDR ETF.

Usually, among the energy subsectors, investors prefer midstream stocks for a higher dividend income. Last year, the fall in energy commodity prices dragged on the energy sector. Among energy subsectors, upstream stocks were affected the most.

With the fall in energy companies’ stock prices, XLE’s dividend yield rose. Historically, among sector-specific SPDR ETFs, the Utilities Select Sector SPDR ETF and the Real Estate Select Sector SPDR ETF have higher dividend yields.

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An opportunity in upstream stocks?

Occidental Petroleum (NYSE:OXY) has a dividend yield of 7%, the highest among the upstream subsector stocks that are the constituents of the S&P 500 Index. OXY has a long history of making consistent dividend payments. In November, though, the stock fell to a 14-year low amid concerns about a fall in its dividends. 

However, based on the company’s investor presentation, it’s returned $32 billion to shareholders through share repurchases and dividends since 2002. Also, in the long term, its dividends are sustainable even with WTI crude oil at $40 per barrel, based on its guidance.

Since Occidental offered $38 billion to acquire Anadarko in April, its stock price has been in a downward trend. It seems Carl Icahn was right about Occidental and Anadarko’s deal. Volatile oil prices also affected Occidental, but its management is confident about stronger growth in dividends and company financials after the acquisition. In the third quarter, OXY’s production mixes in oil, natural gas, and natural gas liquids were 57.4%, 24.6%, and 18%, respectively.

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Most analysts increased their stakes

In the third quarter of 2019, seven out of the top ten institutional investors in OXY increased their stakes. Dodge & Cox, the largest institutional investor in OXY, added 34.7 million shares in the third quarter. OXY constituted 3.3% of Dodge & Cox’s portfolio of publicly traded securities.

Yesterday, a CNBC report highlighted that OXY was reducing its employee strength substantially, according to Reuters. The report further highlighted that the company’s management was focusing on a cost-cutting program via asset sales and the reduction of its employee count “through a voluntary program” in the aftermath of the Anadarko acquisition.

Currently, 23% of the analysts tracking OXY have “buy” ratings on the stock, based on Reuters data. Around 73% of the analysts tracking OXY have recommended “holds,” while 4% have recommended “sells.” Analysts’ mean price target suggests an upside of 10.4% in 2020.

Other top dividend stocks

Apache Corporation (NYSE:APA) has a dividend yield of 3.1%, the second-highest among upstream stocks that are the constituents of the S&P 500 Index. In 2019, APA fell 2.5%. Apache has paid a cash dividend to its common shareholders since 1965.

ConocoPhillips (NYSE:COP) and Cabot Oil & Gas (NYSE:COG) have dividend yields of 2.5% and 2.3%, respectively. Any rise in oil prices could improve COP’s earnings. However, Cabot could decline if natural gas price weakness continues this year. Any spike in oil prices could spell trouble for natural gas prices’ upside. Read More Trouble for Cabot Oil & Gas in 2020? to learn more.


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