Published by Bob Ciura on April 29th, 2017
The energy sector is a great source of high-yield dividend stocks. It is also a place where investors can find dividend growth, in addition to high dividend yields.
For example, there are 51 Dividend Aristocrats—these are companies with 25+ consecutive years of dividend increases.
The two biggest U.S. oil stocks, Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX), are both Dividend Aristocrats.
They have raised their dividends for 35 and 29 years in a row, respectively.
Meanwhile, Phillips 66 (PSX) is not a Dividend Aristocrat, as it has only paid a dividend since 2012, when it was spun off from ConocoPhillips (COP).
But in that time, Phillips 66 has raised its dividend six times. With four more increases, it will become a Dividend Achiever, a group of 265 stocks with 10+ years of consecutive dividend increases.
You can see the full Dividend Achievers List here.
Exxon Mobil, Chevron, and Phillips 66 all announced first-quarter earnings on Friday, April 28th, and all three turned in very strong quarters.
Quarterly Business Overview
First up were the integrated giants, Exxon Mobil and Chevron.
A rundown of Exxon Mobil’s earnings report is as follows:
- Revenue: $63.3 billion (up 30% year-over-year)
- Earnings-per-share: $0.95 (up 121% year-over-year)
In terms of analyst expectations, the results were mixed. Exxon Mobil easily surpassed estimates for earnings-per-share, by $0.10.
But revenue came up short of expectations by about $1.4 billion.
Still, Exxon Mobil posted strong year-over-year growth.
Source: Earnings Presentation, page 7
The company clearly benefited from higher oil prices, which is no surprise since Exxon Mobil is the largest publicly-traded energy company in the world.
Separately, Exxon Mobil continued to cut costs. Capital expenditures were cut by 19%, or nearly $1 billion in dollar terms.
Now, for Chevron’s first-quarter results:
- Revenue: $33.4 billion (up 42% year-over-year)
- Earnings-per-share: $1.41
Chevron’s report was particularly impressive. Wall Street expected earnings-per-share of just $0.86 for the first quarter. In the same quarter last year, the company incurred a net loss of $0.39 per share.
Source: Earnings Presentation, page 5
Chevron returned to profitability with a bang, in large part because it took a huge chunk out of its cost structure. The company cut capital expenditures by $2 billion—a 30% year-over-year reduction—and also lowered operating expenses by 14%
It also benefited from the $600 million sale of an upstream asset in Indonesia.
Finally, oil refiner Phillips 66 handed in its own results:
- Revenue: $23.7 billion
- Earnings-per-share: $0.56 (down 16% year-over-year)
Phillips 66 beat analyst expectations on revenue, which called for $22.3 billion of quarterly sales. Earnings-per-share, while down year-over-year, smashed analyst expectations which called for just $0.03 per share.
On a quarter-over-quarter basis, Phillips 66 posted growth in all three of its major segments—Midstream, Chemicals, and Refining.
Source: Earnings Presentation, page 5
The company posted a surprisingly strong profit for the quarter, as it successfully completed several major turnarounds ahead of expectations.
This was evident in the company’s core refining segment, which reduced its net loss by $93 million from the previous quarter. Margins came in stronger than expected, at $8.55 per barrel from $6.47 per barrel.
For all three companies, the major growth catalysts moving forward are new projects.
When it comes to Exxon Mobil and Chevron, their growth will be through large upstream projects. The company ended the first quarter with 18 major projects currently in execution.
Source: Earnings Presentation, page 18
Exxon Mobil struck a major deal in the first quarter, acquiring a 25% interest in the Area 4 gas field in Mozambique, from Italian oil giant Eni (E) for $2.8 billion.
There have been six major discoveries at Area 4, with 85 trillion cubic-feet of gas in place.
Chevron has major projects both in the international markets, as well as in the U.S.
Overseas, Chevron’s biggest project is its Gorgon liquefied natural gas project in Australia.
Source: Earnings Presentation, page 8
The Gorgon project started up in 2016, and by February 2017 had shipped 39 cargos. Last quarter, Chevron achieved the first LNG shipment from Train 3.
Along with Wheatstone, Chevron’s huge Australian LNG projects are set to fuel considerable production growth moving forward.
Phillips 66 has different growth objectives than Exxon Mobil and Chevron. It is a refiner, operating primarily in the downstream segment.
One of its most promising growth catalysts is exports.
Source: March 2017 Investor Update Presentation, page 8
The company’s Freeport LPG Export Terminal became fully operational in December 2016, after four years of development. It will take supply from Phillips 66’s Sweeny fractionator and Clemens storage facility.
According to Phillips 66, the Freeport LPG Export Terminal can load 36,000 barrels per hour.
With such strong capacity, it is in ideal position to serve growing demand for natural gas and petroleum in international markets.
All three of these Big Oil stocks pay dividends, and all three have secure payouts. As of this writing, Exxon, Chevron, and Phillips 66 have dividend yields of 3.8%, 4%, and 3.2%, respectively.
And, each of them is primed for continued dividend growth. Exxon Mobil recently raised its dividend by 3%.
Thanks in large part to rising oil prices and capital expenditures reductions, both Exxon Mobil and Chevron generate more than enough cash flow to fund their capital spending and grow their dividends.
Exxon Mobil generated cash flow from operations of $8.2 billion for the quarter, nearly double from $4.8 billion in the first quarter of 2016. This easily covered its $3.1 billion in shareholder distributions for the quarter.
Meanwhile, Chevron’s operating cash flow was $3.9 billion, up from $1.1 billion in the same quarter last year. Its quarterly earnings-per-share of $1.41 easily covers its dividend of $1.08 per share.
Phillips 66 had operating cash flow, excluding working capital adjustments, of $748 million last quarter. This supported $326 million in dividends, and $285 million in share repurchases for the quarter.
Phillips 66 is a high-dividend growth stock. Last year, it raised its shareholder payout by 12.5%.
All 3 of the businesses analyzed in this article are members of the elite blue chip stocks list. The criteria to be on this list are:
- 100+ year operating history
- 3%+ yield
As integrated majors with large upstream businesses, Exxon Mobil and Chevron are in great position to benefit from a continued rally in oil prices.
Phillips 66 benefits more from volatility in oil prices, but it is still a highly profitable company with strong assets and growth potential.
All three stocks turned in solid first-quarter performances, and all three remain attractive dividend stocks.
- To see how Exxon Mobil’s and Chevron’s dividends compare against each other, click here.
- For a head-to-head matchup of Phillips 66’s dividend versus Valero (VLO) and its 4.3% dividend yield, click here.