After a torrid start to the year, oil prices have cooled somewhat in recent weeks. Crude oil prices have moved from over $120 a barrel in early June to a recent range in the $90s. Because of this, the oil companies are not making as much money as they did at the start of the year.
However, several oil companies continue to thrive despite the recent drop in crude prices. Three oil stocks that our energy contributors stand out for their ability to thrive even as oil prices continue to fall are Enterprise Product Partners (EPD 1.16%), Devon Energy (DVN 1.69%)and Enbridge (IN B -1.74%).
Joyfully collect more tolls
Reuben Gregg Brewer (Enterprise Product Partners): Enterprise Products Partners is in the middle niche of the energy sector. In effect, the Master Limited Partnership’s (MLP) collection of infrastructure assets helps move oil and natural gas from where they are drilled to where they will ultimately be used.
It’s a pretty boring company that’s driven by the user fees Enterprise collects from its customers. Commodity prices just aren’t that important, so falling oil prices probably won’t be a huge headwind here.
That said, the energy demand is a big deal, as it will dictate the amount of oil and natural gas flowing through Enterprise’s system. On that front, the partnership recently released its second quarter 2022 results. Volumes increased year-over-year in five of the seven business segments. And the two where volume declined saw only modest declines of 3.5% and 1.5%. Meanwhile, the partnership’s distributable cash flow grew 30% year-over-year to a record $2 billion.
Even though Enterprise’s performance slowed for some reason, such as an economic downturn that led to reduced energy consumption, its distributable cash flow covered distribution 1.9x in the second quarter. This leaves plenty of leeway in the face of adversity.
Enterprise currently offers a generous 7.4% payout yield backed by more than two decades of annual increases. Income investors worried about energy prices should consider avoiding the issue and diving deep into this energy name that is taking tolls.
Added another growth driver
Matt DiLallo (Devon Energy): Oil producer Devon Energy has prospered on rising oil prices this year. The company’s operating cash flow has doubled over the past year, reaching $2.7 billion in the second quarter. With the oil company keeping a tight cap on capital spending, free cash flow hit a record $2.1 billion in the quarter.
Devon Energy has returned about half of its free cash flow to shareholders through its fixed and variable dividend framework. Total dividend spend rose 22% in the second quarter to a record $1.55 per share, implying annualized growth of more than 10% dividend yield at the current share price.
Devon also repurchased more shares – withdrawing 4% of its outstanding shares since launching its current program – and bolstered its already excellent balance sheet by increasing its cash balance from $832 million to $3.5 billion. .
The financial strength of the oil company enabled it to conclude two relocation agreements. It purchased the leasehold interests and related assets of RimRock Oil and Gas in the Williston Basin for $865 million. Meanwhile, it recently agreed to acquire Eagle producer Ford Validus Energy for $1.8 billion.
Both transactions will significantly increase its cash flow. This allowed Devon to increase its base dividend payout by 13% upon closing of the RimRock deal. The company expects his variable payout to increase by 10% when he completes the acquisition of Validus.
These dual deals will help offset the impact of the recent drop in oil prices. This means that Devon should be able to continue to pay an attractive dividend and buy back a significant amount of its shares. Meanwhile, with its balance sheet still in pristine condition, Devon has room to acquire more cash-rich oil assets if new opportunities arise.
A reliable stream of income in times of volatility
Neha Chamaria (Enbridge): If you’re worried about the recent reversal in oil prices after a precipitous rally, Enbridge is the type of stock you’d want to pay attention to.
Here’s the problem: Enbridge is a midstream oil and gas company that serves its customers under long-term, priced contracts and can therefore generate steady and stable cash flow most of the time. This works in favor of investors in two ways: It helps support Enbridge’s share price, as well as regular dividends.
Or wait – that’s an understatement: Enbridge hasn’t just paid regular dividends for decades, but has increased its dividend payout every year for the past 27 consecutive years. In a way, this dividend streak speaks to Enbridge’s resilience in a volatile industry. With its resilient business model, Enbridge can confidently set its medium-term financial goals.
Between 2021 and 2024, Enbridge expects to grow its distributable cash flow (DCF) per share at a compound annual average rate of 5% to 7%. This includes a projected growth of 8% for this year. The Canadian oil and gas giant has a strong and growing pipeline of projects to support its cash flow and dividend growth. It already had C$10 billion worth of projects underway and added another C$3.6 billion worth of projects in the second quarter.
Needless to say, Enbridge investors needn’t worry about oil prices, as they should continue to receive bigger dividend checks from the company every year – even though they’re currently enjoying a yield. solid 6.1% on the stock.