Historic production cuts by OPEC+ to avoid oversupply issues and the gradual resumption of economic and industrial activities helped the energy sector to a strong rebound in 2021. And tight inventories and soaring demand recently caused oil and natural gas prices to surge to multi-year highs. However, because no new restrictions are being imposed despite surging COVID-19 omicron-variant infections, OPEC+ has decided to hike its oil production by 400,000 barrels per day beginning next month.
However, demand is expected to increase faster than supply in the recovering economy. So, analysts forecast that oil and natural gas prices will rise again this year. If so, this should keep driving the performance of energy companies.
Given the industry’s growth prospects, and considering current market volatility, we think it could be wise to bet on dividend-paying energy ETFs Energy Select Sector SPDR Fund (XLE), Vanguard Energy Index Fund ETF Shares (VDE), iShares U.S. Energy ETF (IYE), and iShares Global Energy ETF (IXC).
Energy Select Sector SPDR Fund (XLE)
XLE offers exposure to the U.S. energy industry and to many of the world’s largest oil producers. The fund generally invests at least 95% of its total assets in securities from the following industries: oil, gas, consumable fuels, and energy equipment and services. XLE selects its stocks from the S&P 500 rather than the entire market, so its portfolio mainly favors large caps. The fund has approximately $22.98 billion in assets under management (AUM). XLE’s major holdings include Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), and EOG Resources, Inc. (EOG).
XLE has a 0.12% expense ratio, which is lower than the 0.46% category average. It also has an MSCI ESG Fund Rating of A.A. The ETF distributes $2.34 in dividends annually, translating to a dividend yield of 3.61%. Its five-year average dividend yield is 6.55%.
The fund has gained 47.4% over the past year and 18.3% over the past month. XLE is currently trading at $64.30, which is 66.3% above its 52-week low of $38.94. The ETF’s net inflows amounted to $1.86 billion over the past month.
XLE’s POWR Ratings reflect this promising outlook. The ETF has an overall A grade, which equates to a Strong Buy in our proprietary rating system.
XLE also has an A grade for Trade, Buy & Hold, and Peer. Click here to see XLE’s component grades. Of the 45 ETFs in the B-rated Energy Equities ETFs group, XLE is ranked #1.
Vanguard Energy Index Fund ETF Shares (VDE)
VDE offers broad exposure, primarily to companies operating within the oil and gas sector, including companies involved in exploration and production, storage and transportation, refining, drilling, and more. The fund diversifies its holdings by applying limits on regulated investment companies using the MSCI 25/50 methodology. VDE has $7.08 billion in assets under management. The ETF’s major holdings include Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), and ConocoPhillips (COP).
VDE has a 0.10% expense ratio, which is lower than the 0.46% category average. It also has an MSCI ESG Fund Rating of A. The ETF distributes $3.21 in dividends annually, translating to a dividend yield of 3.59%. Its five-year average dividend yield is 5.85%.
VDE has gained 48.6% over the past year and 19% over the past month. The ETF is currently trading at $89.39, which is 65.5% higher than its 52-week low of $54.01. The ETF’s net inflows totaled $189.62 million over the past month.
VDE’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall A grade, which equates to a Strong Buy rating in our proprietary rating system.
VDE also has an A for Trade grade, Buy & Hold grade, and Peer grade. Click here to access VDE’s component grades. VDE is ranked #2 in the Energy Equities ETFs group.
iShares U.S. Energy ETF (IYE)
IYE covers the energy segment of the U.S. large-cap equity market, which holds a concentrated portfolio of companies that facilitate the production and distribution of oil and gas. Holdings are market-cap-weighted, subject to regulatory capping, limiting single security weightings at 22.5% and the aggregate weighting in securities exceeding a 4.5% allocation at 45%. IYE has $2.90 billion in assets under management. The ETF’s major holdings include Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), and ConocoPhillips (COP).
IYE has a 0.42% expense ratio, which is lower than the 0.46% category average. It also has an MSCI ESG Fund Rating of A.A. The ETF distributes $0.90 in dividends annually, translating to a 2.62% dividend yield. Its five-year average dividend yield is 0.46%.
IYE is currently trading at $34.20, which is 64.1% above its 52-week low of $20.84. The ETF has gained 47% over the past year and 17% over the past month. The ETF’s net inflows amounted to $51.65 million over the past month.
It is no surprise that IYE has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The ETF also has an A rating for Trade, Buy & Hold, and Peer. To see IYE’s POWR Ratings, click here. IYE is ranked #4 in the Energy Equities ETFs group.
iShares Global Energy ETF (IXC)
IXC offers exposure to the global energy industry, splitting its exposure between U.S. and non-U.S. stocks. The fund generally invests at least 80% of its assets in the component securities of its underlying index, and the remaining 20% of its assets in certain futures, options and swap contracts, cash, and cash equivalents. The fund has approximately $1.72 billion in assets under management (AUM). IXC’s major holdings include Exxon Mobil Corporation (XOM), Chevron Corporation (CVX), and TotalEnergies SE (TTE).
IXC has a 0.43% expense ratio, which is lower than the 0.46% category average. It also has an MSCI ESG Fund Rating of A.A. The ETF distributes $1.10 in dividends annually, translating to a dividend yield of 3.44%. Its five-year average dividend yield is 1.91%.
IXC has gained 39% over the past year and 19.5% over the past month. The ETF is currently trading at $31.84, which is 53.6% higher than its 52-week low of $20.73. The ETF’s net inflows amounted to $112.86 million over the past year.
IXC’s strong fundamentals are reflected in its POWR Ratings. The ETF has an overall A grade, which equates to a Strong Buy in our proprietary rating system.
IXC also has an A grade for Trade, Buy & Hold, and Peer. Click here to access IXC’s component grades. IXC is ranked #5 in the Energy Equities ETFs group.
XLE shares were trading at $64.07 per share on Thursday afternoon, down $0.23 (-0.36%). Year-to-date, XLE has gained 15.44%, versus a -5.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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