The energy sector was the surprise outperformer of the first quarter this year, with the S&P 500 Energy Sector (XLE) getting a shot in the arm from flaring Middle East tensions, supply chain disruptions, and some nasty weather. More recently, signs of cooling tempers and climbing inventories have prompted some profit-taking, with June-dated oil (CLM24) now cooling its heels back below $80.
However, analysts at Citi are saying that oil prices could stay elevated due to the overall heightened risk backdrop, even without the help of any further geopolitical saber-rattling. “Oil prices may stay higher for longer on geopolitical risk, even without escalation,” said the brokerage firm, and upgraded the energy sector to “overweight.”
With that in mind, now seems like an opportune time to take a closer look at three top-rated oil services stocks that reward investors with a steady stream of passive income: Schlumberger (SLB), Baker Hughes (BKR), and Halliburton (HAL). They've got solid earnings and cash flows, they're smart about where they spend their money, and they're committed to making their shareholders happy with dividends and buybacks.
Let's dive into why these 3 dividend stocks are a smart pick in this “higher for longer” energy market.
Energy Dividend Stock #1: Schlumberger
Schlumberger (SLB), the world's premier oilfield services company, is at the forefront of technological innovation in the energy sector. The company specializes in a wide range of services, including drilling, production, and processing solutions that are crucial for the efficient extraction and management of oil and gas resources.
SLB stock is down 8.6% on a YTD basis, narrowing its 52-week return to about 3%.
Big news hit recently with Schlumberger's announcement to acquire ChampionX (CHX) in a deal that's expected to close by the end of 2024. This move is set to bolster their market position significantly, promising around $400 million in annual pretax benefits from synergies.
Schlumberger is making serious strides in sustainability by investing approximately $380 million in Aker Carbon Capture, aiming to boost its revenue from new energy technologies to $3 billion by 2030. These moves are not just about growing SLB's core oilfield services; they are about finding a foothold in the future of energy, capitalizing on the increasing demand for more efficient and sustainable solutions.
Financially, Schlumberger is looking strong. They kicked off 2024 with adjusted first-quarter earnings per share (EPS) of $0.75, which beat consensus estimates. Analysts are optimistic, projecting yearly EPS growth of 17% to $3.51 for 2024, followed by 20.5% EPS growth to $4.23 in fiscal 2025.
On the dividend front, Schlumberger pays a quarterly dividend of $0.275 per share, which annually adds up to $1.10 per share. That translates to a solid dividend yield of 2.33%, which is well-covered by the modest payout ratio of 32.86%, which balances growth reinvestment and rewarding shareholders.
Turning to analyst ratings, the consensus is a resounding “Strong Buy.” Out of 20 analysts, 18 give the stock their highest rating, while 2 are leaning towards a “Moderate Buy.” This overwhelmingly bullish group sets the mean target price at $66.82, hinting at a promising 40% upside from Thursday's close.
Energy Dividend Stock #2: Baker Hughes
Baker Hughes (BKR), known in the energy world for their rig count data, is expertly balancing their legacy oil and gas operations with forward-thinking ventures into hydrogen and green energy solutions.
BKR is up 16.7% over the last 52 weeks, though the shares have pulled back 6.6% on a YTD basis. That has left the stock attractively priced, with a forward P/E ratio of 15.17 and a PEG ratio of 0.50, plus a forward price/sales multiple of 1.15.
Baker Hughes just landed a decarbonization deal in Europe, inking a deal with Snam to deliver some cutting-edge gas turbine-driven compressor trains for Italy, and they're diving into the green hydrogen pool with a strategic investment in Elcogen.
Financially, Baker Hughes is flexing. They recently reported earnings of $0.43 per share, topping expectations by a cool 7.50%. For the full fiscal year, Wall Street is targeting EPS growth of 30% to $2.08 per share. This robust performance has enabled BKR to maintain a dividend yield of approximately 2.63%, based on its latest quarterly dividend of $0.21 per share.
Analysts are in BKR's corner, with a consensus “Strong Buy” rating on Wall Street. Out of 21 analysts, a whopping 17 are all in with a “Strong Buy” rating, 1 is leaning toward a “Moderate Buy,” and 3 are hanging back with a “Hold.” They've set the mean target price at $41.00, hinting at a tasty 28.4% upside from current levels.
Energy Dividend Stock #3: Halliburton
Halliburton (HAL), a heavyweight in the oilfield services industry, is known for its comprehensive range of services that support the exploration, drilling, and production of oil and gas (NGM24). Their expertise in optimizing the extraction process makes them a go-to partner in the energy sector.
HAL is up 22.9% in the last 52 weeks, but up just 1.5% on a YTD basis. With a forward P/E ratio of 10.71 and a PEG ratio of 0.92, Halliburton's valuation suggests it's priced just right for its growth prospects, making it an appealing choice for investors looking for balanced value and growth.
On the operational front, Halliburton has secured a major contract with Rhino Resources for deep-water services in Namibia, which is set to enhance its global footprint and operational capabilities. This move not only expands Halliburton's reach, but also strengthens its position in the competitive market.
Financially, Halliburton reported a net income of $606 million for the first quarter of 2024, with adjusted earnings slightly higher at $679 million, or $0.76 per share - above the average analyst estimate of $0.74. Despite a flat operating income of $987 million, the company managed a 2% revenue increase to $5.8 billion, which also topped forecasts.
Halliburton also boasts a solid dividend track record, with a recent payout of $0.17 per share and an annual yield of 1.87%. This consistent dividend history underscores their commitment to shareholder returns, supported by over 20 years of regular dividend payments.
On the analyst front, sentiment is overwhelmingly positive. Out of 19 analysts, 17 recommend a “Strong Buy,” 1 suggests a “Moderate Buy,” and 1 says “Hold.” The mean target price is set at $48.20, suggesting a potential upside of 32% from the current level.
Conclusion: Strategic Investments in a High Oil Price Era
Wrapping up, Schlumberger, Baker Hughes, and Halliburton each present compelling cases for investment in the current 'higher for longer' oil price scenario. With their strategic expansions, innovative approaches, and solid financials, these companies are well-equipped to deliver sustainable dividends and capitalize on potential growth opportunities.
For investors eyeing energy sector investments with passive income and upside potential, these three dividend stocks are definitely 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.
