Oil prices have recently hit their lowest levels in years, with Brent crude falling to $69.19 per barrel and U.S. West Texas Intermediate (WTI) settling at $65.75, driven by concerns over weakening global demand. In this environment, income-seeking investors are turning to high-yield oil stocks that can provide a buffer against volatility.
Below, I have highlighted three such quality dividend-paying stocks: EOG Resources, Inc. (EOG), Energy Transfer LP (ET), and Sabine Royalty Trust (SBR), which could provide stable returns to your portfolio.
The downward pressure follows a revision by the Organization of the Petroleum Exporting Countries (OPEC), which lowered its demand forecasts for 2024 and 2025, stoking fears of an oversupplied market. On Tuesday, OPEC adjusted its global oil demand forecast, projecting a rise of 2.03 million barrels per day (bpd) in 2024, down from last month’s forecast for growth of 2.11 million bpd. It also lowered its 2025 demand growth outlook, reducing it from 1.78 million bpd to 1.74 million bpd.
Meanwhile, the U.S. Energy Information Administration (EIA) provided a more optimistic outlook for 2024. The EIA expects global oil demand to hit a new record, averaging 103.1 million barrels per day, 200,000 barrels higher than its prior forecast. Despite this, oil prices remained under pressure, largely due to lingering concerns about China’s economic slowdown, which casts a shadow over the global market.
Given this backdrop, let’s analyze the fundamental aspects of the featured Energy – Oil & Gas stocks, starting with the third choice.
Stock #3: Sabine Royalty Trust (SBR)
SBR holds royalty and mineral interests in various oil and gas production properties in the United States. Its royalty and mineral interests include landowner’s royalties, overriding royalty interests, minerals, production payments, and other similar non-participatory interests in certain producing and proved undeveloped oil and gas properties.
On September 6, the company declared a cash distribution to the holders of its units of beneficial interest of $0.421310 per unit, payable on September 30, 2024, to unit holders of record on September 16, 2024.
SBR pays an annual dividend of $5.06 per unit, which translates to a yield of 8.42% on the current share price. Its four-year average dividend yield is 8.90%. The company’s dividend payouts have grown at a CAGR of 34.4% over the past three years.
SBR’s trailing-12-month gross profit margin of 100% is 122.1% higher than the 45.03% industry average. Similarly, the stock’s trailing-12-month EBIT and net income margins of 97.16% and 96.48% favorably compare to their respective industry averages of 20.68% and 11.70%.
For the fiscal second quarter that ended June 30, 2024, SBR’s royalty income increased 29.7% year-over-year to $22.61 million, while its distributable income increased 32.2% year-over-year to $22.08 million. In addition, its distributable income per unit increased 31.3% year-over-year to $1.51.
Moreover, its revenue and EBIT have grown at impressive CAGRs of 34.8% and 36.9%, respectively, over the past three years. Also, its EPS has increased at a 36.9% CAGR over the same period.
However, the stock has lost 2.2% over the past six months to close the last trading session at $60.03.
SBR’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Sentiment, and Quality. SBR is ranked #11 out of 80 stocks in the Energy – Oil & Gas industry. Click here to access all SBR ratings (Value, Momentum, and Stability).
Stock #2: EOG Resources, Inc. (EOG)
EOG is a crude oil and natural gas exploration and production company. It explores, develops, produces, and markets crude oil, natural gas liquids (NGLs), and natural gas, primarily in major producing basins in the United States, the Republic of Trinidad and Tobago, and internationally.
On August 1, the company’s Board of Directors declared a dividend of $0.91 per share on EOG’s common stock. The dividend will be payable on October 31, 2024, to stockholders of record as of October 17, 2024.
With six years of consecutive dividend growth, EOG pays an annual dividend of $5.14 per share, which translates to a yield of 4.36% on the current share price. Its four-year average dividend yield is 4.76%. Moreover, the company’s dividend payouts have increased at CAGRs of 31.2% and 30.3% over the past three and five years, respectively.
EOG’s trailing-12-month gross profit and EBITDA margins of 62.73% and 56% are 39.3% and 58.8% higher than the industry averages of 45.03% and 35.27%, respectively. Likewise, its 27.06% trailing-12-month ROCE compares favorably to the 13.06% industry average.
During the second quarter (ended June 30, 2024), EOG’s total revenue increased 8.1% year-over-year to $6.03 billion. Its operating income grew 8.1% from the year-ago value to $2.13 billion. The company’s adjusted net income amounted to $1.81 billion and $3.16 per share, reflecting a 24% and 26.9% year-over-year growth, respectively. In addition, its free cash flow stood at $1.37 billion, up 31.9% year-over-year.
Street expects EOG’s EPS for the fiscal year ending December 2024 to increase 4% year-over-year to $12.16. Its revenue for the current year is projected to grow by 2.2% from the year-ago value to $24.72 billion.
In addition, the stock’s revenue and EBITDA have grown at CAGRs of 20.4% and 28% over the past three years, respectively. Similarly, its EPS has improved at a 58.8% CAGR over the same time frame.
EOG’s shares have gained 74.7% over the past year and 44.3% year-to-date to close the last trading session at $117.90.
It’s no surprise that EOG has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Quality and a B for Stability. Out of 80 stocks in the same industry, it is ranked #10.
In addition to the POWR Ratings we’ve stated above, we also have EOG’s ratings for Growth, Value, Momentum, and Sentiment. Get all EOG ratings here.
Stock #1: Energy Transfer LP (ET)
ET provides energy-related services. It owns and operates a natural gas transportation pipeline, natural gas storage facilities, and nearly 20,090 miles of interstate natural gas pipeline. The company also sells natural gas to electric utilities, independent power plants, local distribution and other marketing companies, and industrial end-users.
On August 9, ET paid its unitholders a dividend of $0.32 per common unit for the second quarter, reflecting an increase of 3.2% year-over-year. The company pays an annual distribution of $1.28 per unit, which translates to a yield of 8.07% on the current share price. Its four-year average dividend yield is 8.86%.
On July 15, the company acquired WTG Midstream Holdings LLC for $2.28 billion in cash and 50.8 million newly issued ET common units. The acquisition expands ET’s Midland Basin network with 6,000 miles of gas-gathering pipelines, eight gas processing plants with a capacity of 1.3 Bcf/d, and two additional plants under construction.
Moreover, the deal is expected to boost NGL and natural gas volumes, generating additional revenue from gathering, processing, and transportation fees. ET anticipates that the WTG assets will increase Distributable Cash Flow by $0.04 per unit in 2025, rising to $0.07 by 2027.
The stock’s trailing-12-month asset turnover ratio of 0.74x is 48.9% higher than the industry average of 0.50x. Likewise, its 13.59% trailing-12-month ROCE is 4.1% above the industry average of 7.39%.
ET’s revenues increased 13.1% year-over-year to $20.73 billion during the second quarter that ended June 30, 2024. Its operating income grew 25.2% from the year-ago value to $2.29 billion. Net income attributable to partners came in at $1.31 billion and $0.35 per common unit, up 44.2% and 40% from the prior year’s quarter, respectively.
Furthermore, the company’s adjusted EBITDA increased 20.4% year-over-year to $3.76 billion. And its adjusted distributable cash flow rose 31.2% from the year-ago value to $2.04 billion.
Analysts expect ET’s revenue for the third quarter (ending September 2024) to increase 13.2% year-over-year to $23.47 billion. Its EPS for the same quarter is expected to improve 120.3% from the prior year to $0.37. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 13.3% and 31.6% year-over-year to $89.01 billion and $1.43, respectively.
Over the past three years, its revenue and net income have grown at respective CAGRs of 17.1% and 5.8%. Likewise, its levered FCF has increased at a 5.9% CAGR over the same time frame.
Shares of ET have surged 19.6% over the past nine months to close the last trading session at $15.87.
ET’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, and Stability. ET is ranked #2 in the same industry. To see additional POWR Ratings of ET for Sentiment and Quality, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
EOG shares were trading at $118.13 per share on Thursday afternoon, up $0.23 (+0.20%). Year-to-date, EOG has declined -0.20%, versus a 18.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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