- (1:00) – Breaking Down the Energy Sector: High-Value Stocks That Pay Dividends
- (7:15) – Tracey’s Top Stock Picks
- (25:45) – Episode recap: DVN, PXD, CTRA, FANG, EOG, COP
- [email protected]
Welcome to episode #284 of the Value Investor podcast.
Each week, Zacks Value Investor Portfolio Editor Tracey Ryniec shares some of her top investing tips and stock picks.
Value stocks are back in vogue in 2022, but so are dividend stocks. What if you could buy a cheap stock that was earning more than 5% and also had rising earnings estimates?
Too good to be true?
Not if you know where to look.
Energy companies will again post record profits and free cash flow in the second quarter
Energy companies were already paying hefty dividends earlier this year. Many pay a base dividend, special or variable dividends, and they buy back stocks because they consider them cheap.
The combination of all three shareholder-friendly actions can result in returns in excess of 8%.
With crude oil and natural gas hitting new-decade highs heading into the summer, free cash flow should remain high in the near term.
Warning: you cannot hunt for high dividend yields at this time
Because so many companies pay special dividends, the returns of many energy companies are, frankly, screwed up on most financial sites. They under-report actual performance.
You really have to dig into the dividend announcements by the companies.
It’s a lot of work, so Tracey did it for you so you don’t have to.
5 cheap energy stocks with high yield (more than 5%)
1. Devon Energy DVN
Devon Energy is drilling in the Delaware Basin. With a market capitalization of $51 billion, it posted record free cash flow in the first quarter.
Devon Energy is paying a fixed and variable dividend which was $1.27 in the first quarter, payable to shareholders of record as of June 13 on June 30.
YahooFinance says Devon Energy is earning 6.6%, but it’s also rolling out a huge share buyback program that it raised 25% to $2 billion in the first quarter.
Devon Energy is trading at just 8.9x.
Should Devon be on your wishlist even if it hits new 52-week highs?
2. Pioneer of Natural Resources PXD
Pioneer Natural Resources drills in the Permian Basin and has one of the best track records in the industry. In the first quarter, it returned 88% of free cash flow to shareholders through a base dividend, a variable dividend and a share buyback program.
The quarterly and variable dividend in the first quarter was $7.38, which at the time represented an annualized return of 13%, the highest in the S&P 500.
Shares of Pioneer Natural Resources are hitting new highs, up 56% year-to-date. But they are still cheap with a forward P/E of 8.4.
Should you dive into Pioneer for this huge dividend?
3. Coterra Energy CTRA
Coterra Energy was created in 2021 when Cabot Oil & Gas and Cimarex Energy merged. It drills in the Delaware Basin, the Anadarko Basin in Oklahoma and the Marcellus Shale in the Appalachian Basin where it drills 100% natural gas.
In the first quarter, Coterra Energy returned 69% of its free cash flow to shareholders.
This included a base dividend of $0.15, a variable dividend of $0.45 and the start of execution of its $1.25 billion share buyback plan.
The shares are up 87% year-to-date, but still trade with a forward P/E of just 8.7.
Is Coterra Energy the rare pearl of the group, especially with soaring natural gas prices?
4. Diamondback Energy FANG
Diamondback Energy is drilling in the Permian and announced on May 16, 2022 that it is acquiring Rattler Midstream.
In the first quarter, Diamondback Energy increased its base dividend by 17% to $0.70 per quarter, or $2.80 annualized. That’s a return of 1.8%. But that’s not all.
During the quarter, it announced a variable dividend of $2.35 which, combined with the basis, yielded 9.7% as of May 2.
He also buys back shares.
Should investors buy Diamondback exclusively for its big dividend?
5. Resources EOG EOG
EOG Resources is one of the big drillers with a market capitalization of $85.6 billion. It has undertaken to return at least 60% of its free cash flow to its shareholders.
In the first quarter, it paid a regular dividend of $0.75 and a special dividend of $1.80. The regular dividend, which is $3.00 annualized, is up 86% from the 2021 regular dividend of $1.61.
The special dividend of $1.80 is payable on June 30 to shareholders of record on June 15, 2022.
With WTI remaining above $100 for most of Q2, should income investors jump into EOG Resources?
What else do you need to know to find cheap energy stocks with big yields?
Tune into this week’s podcast to find out.
[In full disclosure, Tracey owns shares of PXD in her personal portfolio.]
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Devon Energy Corporation (DVN): Free Inventory Analysis Report
Pioneer Natural Resources Company (PXD): Free Stock Analysis Report
EOG Resources, Inc. (EOG): Free Stock Analysis Report
Diamondback Energy, Inc. (FANG): Free Stock Analysis Report
Coterra Energy Inc. (CTRA): Free Stock Analysis Report
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