The Energy Sector

Energy companies in oil and natural gas sub-sectors provide investors with a great stream of passive income with healthy dividend payout and a fairly decent dividend growth rate. The energy sector is one of the top grossers of revenue across the world. In addition, the energy stocks are currently under-to-fairly valued, which makes them more attractive for value investors in current market conditions to initiate or extend their positions.
Warren Buffet, CEO of Berkshire Hathaway, has recently made big moves in the energy sector – with Suncor Energy (SU) and Exxon Mobil (XOM). Berkshire Hathaway took a $524M position in Suncor Energy (source) and a $3.7B position in Exxon Mobil (source).

My Portfolio

I recently closed my position in Husky Energy (HSE), which had not grown its dividends for years and I decided to write a covered call, which ended up in-the-money and being assigned. Read details about that transaction here. Due to this transaction, my asset allocation in the energy sector has dropped below what I consider ideal and I am now considering investing more in the energy sector by either adding more equity in my positions in Chevron (CVX) and Inter Pipeline Ltd (IPL) or invest in new equities.Stocks I am considering are:

Company Name Ticker Quote P/E Yield Payout
Chevron CVX $124.03 10.15 3.23% 32.7% 9.13%
ConocoPhillips COP $74.02 11.01 3.73% 41.1% 8.45%
Royal Dutch Shell RDS.B $71.40 9.45 5.04% 47.6% 3.29%
Suncor Energy SU $37.96 19.70 2.11% 41.4% 24.16%
Exxon Mobil XOM $95.01 12.42 2.65% 32.9% 10.04%
I am also considering pipelines/MLPs such as:
Company Name Ticker Quote P/E Yield Payout
Enbridge ENB $44.35 39.93 2.84% 168% 13.82%
Inter Pipeline Ltd IPL $25.80 5.00% 5.45%
Oneok Partners LP OKS $53.52 22.91 5.42% 122% 6.42%
Pembina Pipeline PPL $34.40 34.32 4.88% 173%
Kinder Morgan Inc KMI $35.52 36.14 4.62% 87%
TransCanada Corp TRP $47.12 20.85 3.90% 94% 5.09%
My portfolio weighting in IPL is quite high, so I do not intend to add more to IPL. I am debating between picking up more CVX shares or investing in a new equity. What are your thoughts on the equities mentioned here?Edit: I realized that I had excluded the oil refiners from my list of considerations, so adding them to the list here.

Company Name Ticker Quote P/E Yield Payout
Hess Corp HES $83.33 2.42 1.20% 1.6% 6.58%
Marathon Petroleum MPC $80.25 11.82 2.09% 21.5%
Phillips 66 PSX $68.48 11.93 2.28% 20.5%
Tesoro Corp TSO $57.42 18.76 1.74% 24.4% 14.87%
Valero Energy Corp VLO $44.11 10.05 2.04% 18.1% 8.32%
Disclosure: I own CVX and IPL.Image Credit: Habbick

6 thoughts on “The Energy Sector

  1. Roadmap – Ironically Husky was one of the first dividend stocks I purchased when made the move to dividend investing in late 2011. It is also one of the few I have sold. I sold it a few months back. The reason for the sell was that it had not raised the dividend since 2009, and unlike some other stocks I own (Interpire Crescent Point, Genivar) I did not think the yield at about 4.5% was high enough to keep holding. That being said not an easy decision to sell, and I know they have some good prospects in the North Sea.

    I have about 33 stocks, relatively equal weighted, about 2/3 Canada 1/3 other. If I am overweight any area it is pipelines/energy. Aside from Interpipe and Crescent Point I own TransCda, Enbridge, AltaGas, Keyera and Baytex. I still like all of them, although Baytex is tough because it is heavy oil and gets hit by the price differential between West Texas and Brent pricing, which has been widening again recently.

    Because I limit my non-Cdn investments to 1/3 of my portfoilio, I choose not to invest in foreign energy plays, since I find plenty of good Canadian options in energy. Instead my foreign investments are things I have difficulty buying in Cda, like consumer stocks and technology.

    Good luck!!

    • Thanks for the ideas on your outlook for the energy sector. Good point on the fact that there are a lot of plays in Canada that can be great investments and we dont really have to go international – considering the losses when converting to US$. I will have to take a closer look at the other ones you mentioned such as AltaGas, Keyera and Baytex. I used to own CPG in the past, but decided to sell it.

      Thanks for stopping by and the comment.

  2. In this article there are some interesting companies.
    I own at the moment only RDS.B.

    I have one problem with OKS.
    They are a LP (Limited Partnership or MLP = Master Limited Partnership).

    The tax side for LPs is very difficult, if you are living in Germany!
    I think, after receiving the dividends from LPs or MLPs, you have to do a tax return and send it to the USA. 🙁
    That’s why I avoid all MLPs or LPs.

    Best regards!

    • Dividenden-Sammler,
      Thats interesting. I didnt know that there was so much work involved. Definitely makes you want to avoid them, I guess. What about countries across EU? Does Germany have tax treaties with them?

      Fortunately, Canada has a tax treaty with the US investors are protected from withholding tax when the holdings are in RRSP (tax deferred retirement account).

      Thanks for stopping by and the input. Appreciate it.

  3. I’m looking at both CVX and KMI here and would like to add to XOM too but I’m waiting for that yield to come back up. BP seems to be at probably the best valuation on the E&P side but there’s the huge litigation overhang from the spill.

    • PIP,
      CVX, KMI and XOM are all strong candidates. I am seriously leaning more towards adding to my position in CVX as the stock hasnt appreciated as much as the other ones such as COP. CVX has also had some litigation problems in South America (Ecuador) and that might be one of the reasons for the drag on the stock.
      BP’s dividend cut after the spill and litigation drives me away although they have started increasing their dividends again.

      Thanks for the comment.

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