2 Energy Stocks to Buy With Oil Nearing $90/Barrel

Income-seeking investors can consider adding dividend-paying energy stocks such as Chevron to their portfolios right now.

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Higher oil prices act as a tailwind for energy companies. Typically, oil and gas stocks generate outsized profits when energy prices gain pace, pushing valuations higher.

Lower production numbers by countries part of OPEC+, a resilient macro economy, and geopolitical tensions have meant oil prices have surged over 20% year to date. So, here are two energy stocks you can consider buying as oil nears US$90/barrel.

Chevron stock

Valued at $US295 billion by market cap, Chevron (NYSE:CVX) is among the largest energy companies in the world. In the fourth quarter (Q4) of 2023, Chevron reported revenue of US$47.18 billion and adjusted earnings of US$3.45 per share. Comparatively, analysts forecast revenue at US$47.18 billion and earnings at US$3.21 per share in the December quarter.

Chevron’s balance sheet is solid, and it ended 2023 with single-digit net debt. Chevron emphasized it can cover its dividend and capital spending, even if oil prices move significantly lower.

Chevron pays shareholders an annual dividend of US$6.52 per share, translating to a forward yield of 4.1%. The oil giant returned US$26.3 billion to shareholders via dividends and buybacks in 2023, despite a 40% decline in profits compared to the year-ago period. Further, Chevron’s board of directors approved an 8% increase in quarterly dividends.

Chevron produced 3.1 million oil-equivalent barrels (BoE) each day in 2023 due to a 14% growth in the U.S. and higher capital expenditures. In 2023, Chevron allocated US$4.4 billion towards capital expenditures, an increase of 16% year over year.

Its production in the Permian Basin stood at 860,000 barrels per day (bpd) and is on track to touch one million bpd in 2025 — the energy heavyweight plans to increase production between 4% and 7% in 2024.

A few months back, Chevron announced a big-ticket acquisition of Hess for US$53 billion in stock, expanding its footprint in Guyana, an emerging crude oil producer.

Chevron stock has returned 200% to shareholders in the last two decades. After adjusting for dividends, total returns are much higher at 517%. Priced at 13 times forward earnings, CVX stock trades at a discount of 8% to consensus price target estimates.

Canadian Natural Resources stock

One of the most popular oil and gas stocks on the TSX, Canadian Natural Resources (TSX:CNQ) has crushed the broader markets, rising a whopping 1,400% since April 2004. Despite its outsized gains, CNQ stock offers shareholders a tasty dividend yield of 3.5%. While CNQ is part of a cyclical industry, the company has raised dividends by more than 20% in the last two decades, showcasing the resiliency of its cash flows and earnings.

Canadian Natural, valued at $116 billion by market cap, is a senior crude oil and natural gas production company with operations in Western Canada, the North Sea, and offshore Africa.

CNQ ended 2023 with a net debt of less than $10 billion and will now target to return 100% of free cash flow to shareholders through buybacks and dividends.

In 2023, it reported net earnings of $8.2 billion and adjusted funds flow of $15.3 billion, enabling it to return more than $7 billion to shareholders. In the last three years, CNQ has lowered net debt levels by $11 billion, delivering $21.5 billion to shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources and Chevron. The Motley Fool has a disclosure policy.

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