As we draw closer to the end of 2023, the energy sector remains volatile. Geopolitical conflicts in the Gaza Strip and Ukraine, along with production cuts from key suppliers, are providing support for oil prices; however, soft economic data out of the U.S. and China have raised serious demand concerns, and have effectively kept a lid on any significant rally attempts by crude futures (CLZ23) in recent months.
However, as crude oil tests emerging support in the round-number $80 neighborhood, it's worth considering some of the standout dividend stocks within the energy sector. These top energy stock picks not only provide exposure to oil and gas prices, but they offer steady income via dividend payments, too.
Here, we've pinpointed three energy dividend stocks that look compelling at current levels. These stocks all carry “buy” ratings from analysts, with plenty of potential upside expected - and healthy dividend yields, too.
PTEN: A Drilling Dividend Star
Patterson-UTI Energy (PTEN) stands out as a major player in U.S. oilfield services, offering drilling and pressure pumping services in key oil and gas basins. Alongside these services, they provide directional drilling, rental equipment, and advanced wellbore technology solutions. PTEN had an average of 117 rigs operating during September 2023.
PTEN has paid a dividend for nearly two decades, and offers shareholders a 2.55% yield. The company also has a low payout ratio of 17%, which means it can sustain its dividend while also investing in its growth.
The stock's recent performance has been impressive, as PTEN is up 21.9% over the last six months. The S&P 500 Index ($SPX) is just 7.2% higher during this time frame.
PTEN has a market cap of $2.66 billion, and recently completed its all-stock merger with NexTier Oilfield Solutions, as well as the acquisition of Ulterra Drilling Technologies.
The company's third-quarter earnings are due this Wednesday, Nov. 8. Consensus earnings estimates for this quarter hover at $0.26 per share, a bit lower than the $0.28 per share seen in the same quarter last year.
Longer term, fiscal 2024 EPS is projected at $1.72, up from the expected $1.46 this year.
PTEN appears attractively valued at a forward price-to-earnings ratio of 8.51, which is lower than the sector median of 8.51.
Based on 13 analyst recommendations, the general consensus leans towards a “moderate buy.” Eight suggest a “strong buy,” 1 recommends a “moderate buy," and 4 suggest a “hold.” There's also room for growth, with Wall Street's mean price target of $18.23 indicating upside potential of 45% from current levels.
CHK: A NatGas Dividend Dynamo
Oklahoma-based Chesapeake Energy (CHK) is primarily focused on natural gas (NGZ23), oil, and natural gas liquids, with operations in major basins such as the Marcellus and Haynesville. Their liquefied natural gas (LNG) export business also gives them access to global markets and top-tier pricing.
Over the last six months, CHK shares gained 13.9% on recovering energy prices, nearly doubling the S&P 500's return during this period.
For dividend-minded investors, CHK recently increased its base dividend to $0.575 per share, and yields 6.94%. CHK maintains a reasonable payout ratio of 62.3%, allowing the company to sustain its dividend while investing in its own growth.
CHK’s third-quarter earnings report was mixed last week, as adjusted earnings of $1.09 per share topped expectations - but adjusted revenue of $682 million came in a little light.
Looking ahead, earnings are expected to improve to $5.75 per share by 2024, up from $4.38 per share this year.
With a mean price target of $108.31, analysts see potential 27.5% upside from current levels, on average. The general consensus on CHK is a “moderate buy,” with 7 analysts out of 13 suggesting a “strong buy,” 1 recommending a “moderate buy,” and 5 suggesting a “hold.”
NOV: A Diversified Dividend Leader
Houston-based Nov Inc (NOV) emerges as a prime choice for energy dividend stocks this November, blending growth, income, and value for investors. The company benefits in part from diverse revenue streams, which offer some protection from volatile price swings in the oil and gas market. Formerly known as National Oilwell Varco, the company operates in three divisions - Rig Technologies, Wellbore Technologies, and Completion & Production Solutions.
NOV is up 31.7% over the past six months - outperforming not only the S&P 500, but many of its energy stock peers, as well.
NOV offers investors a relatively modest 0.98% dividend yield - but with a low payout ratio of 21%, there's plenty of room to increase shareholder payouts while also investing in the company's growth.
The stock also appears reasonably valued, with the forward price/sales ratio of 0.94 arriving well below the sector median of 1.54.
In the company's most recent third-quarter report, dropped after the market closed on Oct. 26, Nov reported weaker-than-expected EPS of $0.29, but edged past expectations with revenue of $55.82 million.
Looking ahead to 2024, the consensus forecast is calling for EPS of $1.79, up 23% from the expected $1.45 this year.
Among 18 analysts, the consensus leans toward a “moderate buy,” with 9 recommending a “strong buy,” 2 suggesting a “moderate buy,” 5 advising a “hold,” and 2 casting a “strong sell” vote. Analysts have a mean price target of $25.17, hinting at a potential 25% upside.
Conclusion
In conclusion, Patterson-UTI Energy (PTEN), Chesapeake Energy (CHK), and Nov Inc (NOV) all look like solid income picks in the world of energy dividend stocks for November. Offering a mix of strong market positioning, growth potential, and enticing dividends, these companies are worth considering as oil prices revisit their near-term lows.
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.
