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
Ratio
5-yr
DGR
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
Ratio
5-yr
DGR
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
Ratio
5-yr
DGR
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: freedigitalphotos.net/Victor Habbick

Recent Buy – Chevron (CVX)

Chevron
I initiated a new position in Chevron (CVX). Chevron is a component of the Dow Jones Industrial Average (DJIA), an oil and gas giant operating in both Upstream and Downstream.The Upstream segment is involved in exploration, development and production of crude oil and natural gas; liquefaction, transportation and regasification associated with LNG; transportation of crude oil through pipelines; processing, transportation, storage and marketing of natural gas; as well as holds interest in a gas-to-liquid project. The Downstream segment engages in refining crude oil into petrochemicals, fuel and lubricant additives, as well as plastics for industrial uses. The company is also involved in coal and molybdenum mining operations; cash management and debt financing activities; insurance operations; real estate activities, energy services, alternative fuels and technology businesses. Chevron also manages interests in 11 power assets with a total operating capacity of approximately 2,220 megawatts.

Recent Buy Decision

Chevron is the fourth largest oil and gas company and has been a great all-round performer. Chevron has been increasing dividends for 26 years with a 5-yr dividend growth rate (DGR) of 9.2% and 10-yr DGR of 9.6%.

I think the stock is currently attractively valued with a P/E of 9.71. The stock has a 5-yr average yield of 3.30% and currently yields 3.37% with a payout ratio of 29.8% and plenty of room to increase dividends.

A summary of the stock:

  • Symbol: NYSE: CVX
  • Quote: $118.66
  • 52-week Range: $100.66 – $127.83
  • P/E: 9.71
  • P/B: 1.61
  • Yield: 3.37%
  • 5-yr DGR: 9.2%
  • Payout: 29.80%
  • Debt to Equity Ratio: 0.14
  • Book Value per Share: 72.27
  • Graham Number: 141.65
 
Disclaimer: The information provided here is for educational purposes only. All opinions here are my personal opinions and should not be taken as financial advice. I am not qualified to be a financial advisor. Always consult with your financial advisor before investing in any of the companies mentioned on this blog.