Oil prices have jolted higher this month, with May-dated crude futures (CLK24) up 4.4% since the beginning of March. This rally has largely been fueled by the International Energy Agency's (IEA) latest report, where the agency raised its forecast for global crude oil demand growth in 2024 by 110,000 barrels per day to 1.3 million barrels per day. The IEA cited a stronger U.S. economic outlook, along with increased fuel needed for ships to take longer routes to avoid Houthi attacks in the Red Sea, as the key drivers behind its upward revision.
Against this backdrop of rising oil prices and the IEA's bullish demand forecast, two dividend aristocrats within the energy sector have emerged as compelling investment opportunities. These S&P 500 Index ($SPX) companies, which have consistently increased their dividends for over 25 consecutive years, have earned consensus “buy” ratings from analysts, with mean price targets suggesting healthy upside potential from current levels. As the energy sector gears up for more favorable supply dynamics, these two energy dividend aristocrats are worth a look.
Dividend Aristocrat #1: Chevron Corp
Chevron (CVX) is a massive energy company that has its hands in pretty much every aspect of the oil and gas biz - exploring for it, producing it, refining it, selling it, and shipping it.
The stock is up 3.8% on a year-to-date basis,, not quite keeping pace with the 10.4% return of the S&P 500 Energy Sector SPDR (XLE).
Chevron beat earnings estimates in its Q4 report, with EPS of $3.45 topping the expected $3.29, thanks to high commodity prices and strong upstream production. Analysts expect Q1 2024 EPS to be $3.06, down 13.8% year-over-year, while full-year 2024 earnings are projected to dip 0.7% to $13.04 per share.
In an interesting development, Chevron is getting back into the action in Venezuela's Orinoco Belt, where they plan to drill 30 new wells by 2025. This move is expected to ramp up their production capacity by 35% to 250,000 barrels a day. Plus, they're teaming up with a company from Colombia to set up a solar power plant in Panama.
As for dividends, CVX is currently offering a tasty 4.22% yield, with an annualized dividend rate of $6.52 per share. They just paid out a quarterly dividend of $1.63 per share on March 11, backed by 36 years of consecutive growth.
Analysts seem pretty bullish on Chevron overall. The consensus rating is a "Moderate Buy." Most recently, Piper Sandler's Ryan Todd reiterated a “buy” rating with a $180 price target, while Wells Fargo kept their “buy” rating with a $185 price target.
Out of 19 analysts throwing in their two cents, 11 suggest a “strong buy,” 2 say “moderate buy,” and 6 recommend “hold.” The mean price target is $176.94, a premium of 14.3% to Thursday's close.
Dividend Aristocrat #2: ExxonMobil
ExxonMobil (XOM) stands out as one of the world's leading oil and gas companies. It's a true behemoth in the energy sector, with operations in nearly every aspect of the oil and gas industry, from upstream to downstream.
On a YTD basis, XOM stock has notched a gain of 13.5% - outperforming both the XLE and the broader S&P 500.
ExxonMobil has big plans to boost production in key areas. They're aiming to crank out 2 million barrels per day from the Permian Basin by 2027, which is pretty impressive. But that's not all – they just struck gold (black gold, that is) in Guyana with a major discovery called Bluefin. Right now, they're already pumping out 650,000 barrels a day there, but they want to nearly double that to 1.2 million by 2027. If they pull that off, Guyana's output would be on par with big-time oil producers like OPEC member country Angola. Exxon might even start their first offshore natural gas project in Guyana, too - making this a critical asset in the oil major's portfolio.
XOM recently dropped their Q4 2023 earnings, and they outdid themselves with earnings per share of $2.48, cruising past the $2.21 analysts were expecting. They're gearing up to report Q1 2024 earnings on April 26, with the consensus forecast sitting at $2.17 per share, which would be a 23% decline from last year. For the whole of 2024, experts are betting on XOM to earn $9.11 per share, down 4% from 2023, before returning to EPS growth in fiscal 2025.
When it comes to dividends, XOM boasts a dividend yield of 3.36%, which the oil major has steadily increased for 25 consecutive years. With a modest payout ratio of 38.6%, Exxon's dividend is well-covered by its earnings, with plenty more room for growth.
Analysts are pretty upbeat on ExxonMobil, with a "moderate buy" consensus on Wall Street. Out of 19 analysts throwing their hats in the ring, 10 are all in with a “strong buy,” and 8 are playing it cool with a “hold.” The average price target is $123.94, a premium of more than 9% to Thursday's close.
Jefferies recently bumped up their price target for XOM to $135, tipping their hats to the company's solid cash flow and the potential for more share buybacks. Ryan Todd from Piper Sandler is also singing ExxonMobil's praises, sticking with a "Buy" rating and setting the price target at $130, nodding to the company's appealing value and the chance for even more dividend growth.
The Bottom Line on CVX and XOM
With oil prices climbing and the IEA predicting strong demand, Chevron and ExxonMobil are shining stars in the energy game. They're not your typical oil stocks; they're dividend aristocrats that promise a steady stream of income. So, if you're looking to invest in an energy market that's heating up, these two giants are worth a closer look.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
