We recently compiled a list of 13 Best Natural Gas and Oil Dividend Stocks To Buy. Since ConocoPhillips (NYSE:COP) ranks higher on our list, we have analyzed the stock in detail.
Energy stocks can be hot and cold, ranging from periods of strong performance to periods of relative stagnation. These stocks attract attention from investors, particularly when oil prices surge or geopolitical tension escalates, leading to increased volatility and heightened trading activity. This is what we have seen thus far this year. Energy stocks performed well in the first four months of 2024 because of increasing oil prices. However, when oil prices began to decline in May, energy stocks also fell. The energy sector is up by nearly 7% this year so far but experienced a roughly 4% drop in the past month. As of June 7, oil prices reported their third consecutive week of decline. Investors balanced OPEC+ reassurances with recent US jobs data, which reduced the likelihood of the Federal Reserve lowering interest rates in the near future. The jobs report suggested that interest rates would remain high for an extended period, which usually reduces optimism in the oil market.
While the performance of energy stocks is influenced by oil prices to some extent, the earnings of oil refiners, storage, and transportation companies are not directly dependent on these prices, according to Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. One of the main reasons for this is that these companies mainly operate on fixed margins or fee-based structures rather than being closely linked with fluctuating prices. Here are some other comments from the analyst:
“Many exploration and production companies have productive oil wells and should be able to generate solid profit margins. Since these companies tend to return capital to shareholders in the form of dividend payouts, their stocks represent an opportunity for income-orientated investors.”
Although energy stocks experienced a rally in the initial months of the year, their behavior seems to align with past patterns, as predicted by analysts. Walter Todd, chief investment officer at Greenwood Capital Associates, said that the historical trend observed in energy stocks resembles a boom-and-bust cycle: when oil prices surge, these stocks also rise, but subsequently, a supply response triggers price declines and causes these stocks to fall. That said, US oil companies are showing greater capital discipline, resulting in higher returns and lower valuations compared to the other sectors in the market.
Though oil dominates the energy market as the largest player, natural gas also holds significant importance and plays a crucial role. It serves various purposes, including power generation, heating commercial and residential buildings, and supporting industrial activities. In addition, it is relatively inexpensive compared to other fossil fuels. Its distinctive attributes have led to an expectation of continued growth in its demand. According to a report by the International Energy Agency, global gas demand is set to increase by 2.5% in 2024, equivalent to 100 billion cubic meters (bcm). The report further mentioned that the steep decline in natural gas prices after the record highs of 2022 is contributing to the rebound in gas demand.
Many oil and gas stocks provide attractive yields, making them appealing to investors who prefer high-dividend stocks.
Photo by Dan Dennis on Unsplash
Our Methodology:
For this list, we first scanned Insider Monkey’s database of 920 hedge funds, as of the first quarter of 2024. Our focus was on selecting gas and oil companies that are involved in the exploration, production, transportation, or distribution of oil and gas. From this pool of companies, we identified 13 companies that prioritize distributing dividends to their shareholders and ranked them in ascending order of the number of hedge funds having stakes in them at the end of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 62
ConocoPhillips (NYSE:COP) is a Texas-based energy company that develops and produces crude oil and natural gas globally. The US oil and gas industry has been experiencing a wave of consolidation as companies aim to enhance their reserves and achieve economies of scale. ConocoPhillips (NYSE:COP) is also participating in the sector’s trend of mergers and acquisitions. Recently, it has agreed to acquire Marathon Oil (MRO) for $22.5 billion and expects to achieve cost savings of $500 million within the initial full year following the completion of the transaction. In addition, the acquisition contributes over 2 billion barrels of reserves to its portfolio.
We believe that ConocoPhillips (NYSE:COP) is poised to benefit from this acquisition. The company mainly emphasizes maintaining a low production cost and diversifying its asset base to generate free cash flow (FCF) consistently, even during periods of low oil and gas prices. It is recognized for its capital allocation strategies. Marathon’s cash generation business model provides ConocoPhillips (NYSE:COP) with additional capital, allowing for more strategic investment opportunities. In its recent earnings report, the company announced that it plans to return $9 billion to shareholders through 2024. In Q1 2024, the company generated $5 billion in operating cash flow and its cash from operations came in at $5.1 billion. It distributed $2.2 billion to shareholders during the quarter through dividends and share repurchases.
ConocoPhillips (NYSE:COP) reported growth in its production in the first quarter of 2024 to 1,902 thousand barrels of oil equivalent per day (MBOED), from 1,792 MBOED during the same period last year. The company reported a decline in its earnings due to impacts from lower prices and higher costs, which were partially mitigated by higher volumes.
ConocoPhillips (NYSE:COP) is one of the best dividend stocks on our list as the company has been rewarding shareholders with growing dividends for the past nine years. It currently pays a quarterly dividend of $0.58 per share and has a dividend yield of 3.40%, as of June 10. The stock’s forward P/E ratio of 12.39 suggests that it may be cheap relative to its earnings outlook. Street analysts have maintained a consensus Strong Buy rating on COP with an average price target of $147.2, which reflected a 30% upside potential.
The number of hedge funds tracked by Insider Monkey owning stakes in ConocoPhillips (NYSE:COP) grew to 62 in Q1 2024, from 59 in the previous quarter. The total value of these stakes is more than $4.4 billion. Among these hedge funds, Eagle Capital Management was the company’s leading stakeholder in Q1.
Overall, COP ranks 4th among the best natural gas and oil dividend stocks. You can visit 13 Best Natural Gas and Oil Dividend Stocks To Buy to see other dividend stocks from the natural gas and oil sectors. While we acknowledge the potential of dividend 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 as promising as 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. This article is originally published at Insider Monkey.