The energy sector is facing unprecedented challenges, as well as opportunities, in 2023. The global energy crisis triggered by the Russian invasion of Ukraine continues to affect supply and demand dynamics for oil (CLU24) and gas (NGU23), as well as the prices and affordability of electricity.
At the same time, the energy sector is undergoing a rapid transformation towards a cleaner and more sustainable future, driven by the urgency of climate change, the innovation of renewable energy technologies, and pressure from investors and consumers. During this pivotal time, investors should look for energy stocks that have solid fundamentals, attractive valuations, and favorable outlooks. Here's a look at three potential candidates with healthy dividend payouts.
APA Corp: A Diversified Energy Stock with Strong Cash Flow
APA Corporation (APA) shines as an independent player in the oil and gas exploration and production scene, operating in the U.S., Egypt, and the North Sea. They are not just sticking to the old school of energy production, either — APA's got a diversified mix of conventional and unconventional resources, plus a side hustle in renewable energy through their partnership with TotalEnergies SE.
APA has a market capitalization of $13.1 billion and offers a dividend yield of 2.35%. It's been one of the best-performing energy stocks in the past month, too, gaining 8.6% during this time frame to outperform both the S&P 500 Index ($SPX) and the US Oil Fund (USO).
The company reported strong earnings results for the second quarter of 2023, beating analysts’ expectations by 28.79%. APA posted net income of $3.67 billion, or $0.85 per share, compared to a net loss of $4.48 billion, or $11.86 per share, in the same period last year. Plus, management announced a new share repurchase authorization of $1 billion - a move that typically reflects confidence in its cash flow generation and balance sheet strength.
APA also declared a quarterly dividend of $0.25 per share. The company has a dividend payout ratio of 15.66%, which indicates its ability to sustain and grow its dividend in the future.
Analysts have also revised their earnings estimates for the next quarters and years upward. For example, the average earnings estimate for the current quarter (09/2023) is $0.92 per share, up from $0.85 per share a month ago.
APA looks undervalued compared to its peers in the energy sector. The stock trades at a price-to-earnings ratio of 8.00, which is lower than the industry average of 12.64. The stock also has an average price target of $47.28 for the next 12 months, which implies expected upside of more than 10% from current levels.
APA stock looks like a good dividend stock to buy on the dip, as it offers an attractive valuation, a diversified portfolio, and earnings growth potential. Analysts are bullish on APA, with an average Moderate Buy rating.
Out of 18 analysts covering the stock, nine rate it as a strong buy, seven rate it as a hold, and two rate it as a strong sell.
Marathon Petroleum: A Refining Giant with a Strong Dividend and Growth Prospects
Marathon Petroleum Corporation (MPC) is one of the largest independent refiners and marketers of petroleum products in the U.S., with a market capitalization of $57.2 billion and annual sales of $177.5 billion. The company operates 16 refineries with a combined crude oil capacity of 3 million barrels per day, as well as a network of pipelines, terminals, and retail outlets. Not to mention, its subsidiary MPLX LP handles the midstream business, providing reliable transportation and storage services for both crude oil and natural gas liquids.
MPC has been one of the most resilient energy stocks in the past year, gaining more than 37% to outpace both oil prices and the broader equities market. This success story can be attributed to a handful of positive factors that have come into play.
Some of the positive catalysts for MPC include its strong second-quarter earnings, which surpassed expectations by 16.92%; the announcement of a quarterly dividend of $0.75 per share; and the establishment of a strategic partnership with Chevron Corporation for co-developing renewable U.S. diesel projects.
In the second quarter of 2023, MPC reported net income of $14.52 billion, or $5.32 per share, compared to a net loss of $9.18 billion, or $14.25 per share, during the same period the previous year. With a dividend payout ratio standing at a stable 10.42%, it's clear that MPC is well-equipped to sustain and even grow its dividend in the future. What's more, MPC boasts a noteworthy compound annual growth rate of 11% for its dividend over the past five years, well above the sector median of 4.05%.
Trading at a modest price-to-earnings ratio of 5.52, well below the industry average of 12.64, it's clear that MPC is a potential diamond in the rough. Unsurprisingly, out of the 15 analysts watching the stock, nine tout it as a strong buy, five give it a hold, and one leans towards a moderate buy.
In sum, MPC stands tall as a refining powerhouse that marries a hearty dividend with attractive growth prospects.
HF Sinclair: A Renewable Energy Leader with a High Dividend
HF Sinclair Corporation (DINO) is a dynamic energy powerhouse, dabbling in refining, transportation, and renewable fuels. They operate a fleet of seven refineries churning out a whopping 1.1 million barrels of crude oil daily. DINO boasts a market capitalization of a cool $10.19 billion, with a dividend yield of 3.18%.
DINO absolutely crushed it in Q2 2023 earnings, beating bottom-line projections by a whopping 14.54%. Net income rose to $2.92 billion, or $2.60 per share, reversing a good portion of last year's net loss of $1.25 billion, or $6.66 per share.
The company also announced a quarterly dividend of $0.45 per share. Longer term, DINO has a dividend payout ratio of 13.72%, indicating strong sustainability for these quarterly payouts - and they've been at it for eight years straight, growing dividends at a 9.8% compound annual rate over the past half-decade.
On the operational front, DINO just agreed to acquire Holly Energy Partners, L.P., in a $2.4 billion merger spectacular. Think diversity and integration on steroids; this synergy promises more cash flow stability and growth opportunities than you can shake a pipeline at.
Among the team of 12 analysts tracking DINO, five of them advocate a "strong buy" sentiment, while the remaining seven lean towards a "hold."
DINO isn't just an energy standout – it's a tucked-away dividend gem, too.
Final Takeaway
If you're on the hunt for energy stocks that can pump up your portfolio returns, APA, MPC, and DINO are worth considering. Despite the oil and gas rollercoaster, these stocks are holding their own on the charts, and look well-positioned for future growth. Plus, they're not shy about sharing the dividend love with investors. It's like getting a slice of both the dividend and growth pies. So, if you're looking for a way to spark up your portfolio, these three are your go-to energy stocks.
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.
