3 High Yield Plays On Outperforming Energy High Dividend Stocks

by Robert Hauver
The Energy sector continues to lead all other sectors in 2014. As of 7/16/14, this sector, as measured by the XLE etf, was up 12.73% year to date, vs. 7.16% for the S&P500, and only 3.3% for the DOW. The XLE etf is dominated by large cap dividend stocks, such as Conoco Phillips, (COP), which is its 4th largest holding, after Exxon, Chevron, and Schlumberger.
When looking at performance, however, the majors, such as Exxon and Chevron, have greatly underperformed independent Conoco, which is up over 22% so far in 2014, vs. gains of only 5.2% for Chevron and 2.6% for Exxon.
COP also has the second highest dividend yield in the group, at 3.39%, having just raised its quarterly dividend from $.69 to $.73.
We screened for other dividend paying independent oil & gas stocks, to see if there are some other worthwhile outperformers in that sub-industry. We came up with Delek Logistics LP, (DKL), a relatively new, (NOV 2012 IPO),small cap high dividend stock, which we recently added to our High Dividend Stocks By Sectors Tables.

Dividends/Distributions: After spinning off its refining division, Phillips 66 (PSX), in 2012, COP has gone from paying $.66 to $.69, and now $.73 a quarter. DKL has raised its quarterly distribution 5 straight times since its IPO.
COP-DKL-DIV

Options: Although COP just went ex-dividend, you can still earn an attractive options yield on it, via selling November 2014 covered calls, which will also allow you to either capture the next quarterly dividend, in October, or get paid even more $ if your shares get assigned. DKL has a much higher option yield, but its shares are much closer to its strike price.
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Disclaimer: This article was written for informational purposes only. Author not responsible for any errors, omissions, or actions taken by third parties as a result of reading this article.
Copyright DeMar Marketing 2014. All rights reserved.

3 Major Oil Dividend Stocks With High Options Yields

By Robert Hauver

Looking for ways to play $100+ per barrel oil?  The Energy Sector has many dividend paying stocks, in fact, many of them are listed in the Energy section of our High Dividend Stocks By Sector Tables. Although most of the Major Integrated Oil stocks don’t have such high dividend yields, there are some that can still give you double digit high options yields, via selling covered call options and cash secured puts. We found 3 Oil dividend stocks with attractive mgt. metrics, good margins, and good growth prospects for 2011:

Conoco Phillips, (COP), PetroChina, (PTR), and, the big kahuna, Exxon Mobil, (XOM). Here’s how these 3 firms compare vs. their peers in the Oil Majors group:

ROE-XOM-COP-PTR2011-02-24

Conoco has the lowest margins of this group, due to its heavier exposure to refining, a lower margin part of the oil biz.  However, Conoco has been divesting poor-performing assets, and is moving to concentrate more on exploration and production, which should improve margins.  Two other factors favor COP’s future earnings: 1. COP has a higher proportion of natural gas than its peers and should benefit from environmental concerns that favor natural gas. 2.  COP also has significant ownership in pipeline and other transportation assets, which offer steady income that is not as tied to variations in commodity prices. (Source: Morningstar)

PetroChina, China’s largest oil and gas company, looks to secure future domestic and international supply to feed a nation hungry for energy. Refining operations lost money over the past few years as the price of crude oil soared while the price for refined products in China remained stagnant, due to government controls. Now, the Chinese government will revise product prices if oil prices fluctuate over a given period of time. The new system should improve refining margins. (Source: Morningstar)

ExxonMobil sets itself apart among the other supermajors as a superior capital allocator and operator. Resource nationalism is becoming an increasingly greater challenge to international oil companies’ (IOC) ability to grow production. Countries rich in oil and gas reserves are increasingly picky when choosing partners, such as Exxon, to work with their national oil companies (NOC) to explore for, produce, and transport to market their oil and gas reserves. With its deep pockets, expertise, and integrated operations, Exxon can tackle nearly any mega-project regardless of scale, location, or operational difficulty. (Source: Morningstar)  In addition, Exxon’s purchase of XTO positions it as a major player in the growing utilization of natural gas, which Exxon predicts will overtake coal as the 2nd most utilized fuel source in the coming years.

Looking ahead to 2011 earnings, Conoco and PetroChina appear undervalued:

XOM-COP-PTR-PEG-2011-02-24

While XOM’s 2011 PEG is over 1, it generally commands a premium to its peers in the market, hence the higher P/E and PEG’s.

Here’s how you could lock in high option yields now, by selling Covered Call options:

XOM-COP-PTR-CALLS-2011-02-24

Note how the above call options are approx. 3 times the price of the dividends. Another positive to the Covered Call and Cash Secured Put options strategies is that you receive the option premium $ within 3 days of selling calls and puts, as opposed to waiting for each quarterly dividend. The flip side, is that your participation in possible future price gains is limited to your potential assigned yield – (the difference between the strike price and the stock’s cost basis).  Our Covered Calls Table can give you more info about these and other Covered Call options trades.

Conversely, if the current high market prices make you nervous, you could also earn high options yields by selling Cash Secured Puts for any of these stocks, thereby receiving much more $ from their put options, than their current dividend yield will earn you. You’d also have a lower break-even price:

XOM-COP-PTR-PUTS2011-02-24

There’s more info about these and other put options trades in our Cash Secured Puts Table.  (Note: Put option sellers don’t receive dividends, we listed the dividends for comparison only .)

Disclosure: Author is long XOM shares, and may be short COP puts in the near future.

Disclaimer: This article is written for informational purposes only.

Conoco Phillips – A Basic Materials Dividend Stock With Earnings Growth

By Robert Hauver

Finding undervalued dividend paying stocks in this ongoing rally can be very challenging, to say the least. If you’re looking for Basic Materials dividend stocks with good earnings growth, Conoco Phillips is worth a look.

They just reported Q4 and full year 2010 earnings, and they blew away last year’s earnings and sales – Q4 sales up 23%, Q4 adjusted net income up 10%, Full year 2010 sales up 27%, and Full Year adjusted net income up 80%.

Company Profile: Conoco Phillips is the 3rd largest integrated U.S. oil firm, by market cap and reserves.

COP operates in 6 segments:

Exploration and production, Refining and marketing, Midstream, A 20% stake in the Russian oil company Lukoil, Chemicals, and Emerging businesses.

As of end of the third quarter of 2010, COP had received about $6.3 billion from the sale of its Lukoil shares, and expects to sell its remaining shares of Lukoil by the end of 2011.

COP vs. its Oil Majors Industry Peer Group:

COP-ROE-2011-02-01

As you can see, COP’s mgt. metrics are mostly similar to industry averages.  However, Conoco paid down $3 billion of debt in 2010, and now enjoys a better Debt/Equity than its peers’ avg.

COP’s earnings growth figures surpass its peers avgs.:

COP-PEG-2011-02-01

You can increase your yield on Conoco by selling Covered Calls:

COP-CALL-2011-02-01

This covered call trade’s option payout is over twice that of the dividend yield.

There are more details about this and other call options trades in our Covered Call Table.

If you want to play it more conservatively, you might consider selling Cash Secured Puts:

COP-PUT-2011-02-01

This put options trade gives you a lower break-even point than the covered call trade, and a higher yield.

There are more details about this and other put options trades in our Cash Secured Puts Table.

Conoco Phillips increased its quarterly dividend in 2010, from $.50 to $.55/share, and its next ex-dividend date should be approx. February 18, 2011.

Disclosure: No positions

Disclaimer: This article is written for informational purposes only.