We recently published a list of Retirement Stock Portfolio: 12 Energy Stocks To Consider. In this article, we are going to take a look at where ConocoPhillips (NYSE:COP) stands against other energy stocks in retirement stock portfolio.
Navigating Energy Markets: The Financial Pressures on Clean Energy and the Ongoing Role of Fossil Fuels
In 2023, the clean energy sector took the biggest hit, bearing the brunt of global tensions more than any other sector. Supply chain disruptions, the energy crisis following Russia’s invasion of Ukraine, and the subsequent rise in interest rates and inflation impacted all sectors within the natural resources industry. Meanwhile, traditional energy companies capitalized on strong demand and high fossil fuel prices.
Despite these significant challenges, the necessity of transitioning to clean energy has never been more urgent. This is because, without it, the world will suffer from drastic economic losses associated with climate change. According to Deloitte’s report, “Financing the Green Energy Transition: A US$50 Trillion Catch”, the need for collaboration in developing investment strategies is crucial. As such, the collective investment necessary to achieve the transformation to clean energy is between $5 trillion and $7 trillion per year globally through 2050. Even though the renewable sector is facing pressures on financing, global investment in clean energy is set to double the amount going to fossil fuels this year.
According to the International Energy Agency, for the first time in 2024, total energy investment worldwide is expected to exceed $3 trillion, with an estimated $2 trillion going to clean technologies. The remainder is set to go towards coal, oil, and gas. According to the report, the combined investment in renewable power and grids overtook the amount spent on fossil fuels for the first time in 2023. Even though it is improving, the world needs to catch up on investing in clean energy to make the transition successful.
While the importance of clean energy can not be stressed enough, oil and gas companies continue to play a crucial role in the global energy landscape. They are benefitting from high energy prices and increased demand for fossil fuels as the transition to renewables progresses. This sector remains vital for meeting the world’s immediate energy needs and providing stability in energy markets during the transition period. 2022 was especially a blissful year for them, with skyrocketing oil prices bringing in record profits for oil companies. Big Oil more than doubled its profits to $219 billion. Of course, shareholders were rewarded with substantial returns, with top Western oil companies paying a record $110 billion in dividends and share repurchases to investors in 2022.
While the year was as sparkling as it could ever be, the $70 to $80 per barrel oil prices in 2023 fell short of the above $130 per barrel peak driven by the conflict in 2022. While recent spikes in oil prices, such as those following Russia’s invasion of Ukraine, provided opportunities for stock buybacks and investor rewards, companies face long-term challenges. The shale revolution and the pandemic have already impacted oil profits, and future demand for fossil fuels remains unpredictable.
Despite current financial stability and unchanged borrowing costs, energy firms are cautious about expanding production due to these uncertainties. One way to transition to clean energy that can help such companies is by strategically investing in and developing renewable technologies, such as offshore wind, hydrogen production, and EV charging infrastructure. Leveraging existing expertise and financial strength to diversify their energy portfolios and focusing on customer-centric business models and capital excellence is the way to go.
For retirees, investing in energy stocks offers compelling value due to their stability and dividend potential. Dividend-paying stocks are the kind of stocks one should invest in for retirement as they offer a regular stream of income, as well as allow the principal to remain invested for potential growth. Even though the clean energy sector faces challenges such as financial pressures and investment needs, the overall energy market remains robust. The shift towards renewables is driving significant capital into clean technologies, with global investments in clean energy expected to double those in fossil fuels in 2024. This ongoing transition creates opportunities for stable returns from companies that are involved in both traditional and renewable energy sectors.
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An underground network of pipelines transporting oil through an expansive terrain.
ConocoPhillips (NYSE:COP)
Next on our list of the retirement stock portfolio is ConocoPhillips (NYSE:COP), which is an American multinational corporation involved in hydrocarbon exploration and production. It explores, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids in the United States, Canada, China, Libya, Malaysia, Norway, the United Kingdom, and internationally.
As of September 6, the dividend yield for the stock stands at 3.32%. It has maintained a consistent dividend payment record since 1986. The company also intends to raise its ordinary dividend by 34% to 78 cents per share from the fourth quarter of 2024.
ConocoPhillips (NYSE:COP) has had a strong second quarter, beating earnings expectations with a reported EPS of $1.98, while expectations were $1.96. The revenue growth rate at the end of June 2024 was around 10.27%, with an increase in income due to rising production and higher oil prices. It produced 1,945,000 barrels of oil equivalent per day, representing 4% underlying growth year-over-year. It also generated $5.1 billion in cash flow from operations and returned $1.9 billion to shareholders through buybacks and dividends.
For Q3, the company expects production to range between 1.87 million and 1.91 million barrels per day. It has also received shareholder approval for its planned merger with Marathon Oil Corporation MRO, a transaction valued at $22.5 billion and including $5.4 billion in net debt, expected to close at the end of the fourth quarter of 2024. The acquisition will significantly enhance the company’s U.S. onshore portfolio.
According to Insider Monkey’s database of Q2 2024, there are 72 hedge funds bullish on ConocoPhillips (NYSE:COP), representing a collective value of $58.17 million.
Overall, COP ranks 5th on our list of energy stocks in retirement stock portfolio. While we acknowledge the potential of energy stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. Retirement Stock Portfolio: 12 Energy Stocks To Consider is originally published on Insider Monkey.