As 2024 draws to a close, Wall Street is basking in a bullish glow, driven by robust economic growth and easing inflation pressure. The S&P 500 has soared 29.5% year to date, hitting record highs over 50 times. Yet, the Oil/Energy sector has lagged behind, delivering a modest 4.1% in total returns. This stark underperformance raises the question: where should energy investors look for stability and opportunity?
Image Source: Zacks Investment Research
A Volatile Energy Market
Crude oil prices, hovering near $70 per barrel, are almost 20% below April’s peak. The backdrop includes sluggish global demand and concerns over a cooling Chinese economy. In response, OPEC has trimmed its 2024 oil demand growth forecast for the fifth consecutive month, anticipating 1.61 million barrels per day, down 27% since July. This uncertain landscape has made energy one of the weakest sectors in an otherwise stellar market year.
The Case for High-Yield Energy Stocks
In volatile times like these, high-yield, large-cap energy stocks offer a crucial safety net. These companies, typically boasting a market capitalization of $10 billion or more, combine steady cash flow with robust dividends, providing a buffer against commodity price swings. Their resilience and financial strength make them a compelling choice for investors seeking income and stability in a turbulent sector.
Canadian Natural Resources Limited (CNQ – Free Report) , Chevron (CVX – Free Report) and Kinder Morgan (KMI – Free Report) stand out as prime examples of high-yield, large-cap energy stocks. Their established track records and consistent dividend payments make them particularly attractive to income-focused investors.
CNQ, CVX and KMI Dividend Yield
Image Source: Zacks Investment Research
Why Large Caps Shine
Large-cap energy companies excel in offering financial stability and reduced risk. Their size and market presence allow them to weather fluctuations in commodity prices better than smaller competitors. While they may not deliver the explosive growth potential of mid- or small-cap firms, their consistent performance appeals to those prioritizing steady returns over high-risk ventures.
Moreover, their robust dividend policies provide an added layer of security, helping offset losses during periods of market instability.
Our Choices
Canadian Natural Resources: It is one of the largest independent energy companies in Canada. The company is engaged in the exploration, development and production of oil and natural gas. Canadian Natural Resources boasts a diversified portfolio of crude oil (heavy as well as light), natural gas, bitumen and synthetic crude oil.
Calgary-based CNQ beat the Zacks Consensus Estimate for earnings in three of the last four quarters, the average being 3.9%. Canadian Natural has a market capitalization of roughly $63.7 billion.
A major incentive for holding CNQ stock is dividends. With a quarterly payout of 56.25 Canadian cents, CNQ shares currently yield 5.5% annually, well above the Zacks Oil/Energy sector average of 4.2%. Reflecting a shareholder-friendly nature, this Zacks Rank #3 (Hold) company recently hiked its payout by 7%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chevron: It is one of the largest publicly traded oil and gas companies in the world, which participates in every aspect related to energy — from oil production to refining and marketing.
Chevron beat the Zacks Consensus Estimate for earnings in three of the last four quarters. This #3 Ranked company has a market capitalization of roughly $258.5 billion.
With a quarterly payout of $1.63 per share, CVX stock has a 4.5% dividend yield, above the generous sector average and significantly over the S&P 500’s 1.2% average.
Kinder Morgan: Houston, TX-based Kinder Morgan is a leading midstream energy infrastructure provider in North America. The company operates pipelines across 83,000 miles to transport natural gas, crude oil, condensate, refined petroleum products, CO2 and other products.
Kinder Morgan, carrying a Zacks Rank of 3, is valued at some $60.7 billion. The consensus estimate for this energy infrastructure provider’s 2024 earnings per share indicates 9.4% year-over-year growth.
KMI pays out a quarterly dividend of 28.75 cents, which gives it a 4.2% yield at the current stock price.
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