Oil continues its steady march higher. After plunging to a low of $27 per barrel in February 2016, WTI crude is back to $50 per barrel.
And, the rally could still have more room to run. OPEC has committed to cutting supply this year. On May 15, Russia and Saudi Arabia agreed to leave production cuts through next March.
This is good news for U.S. producers, which are starting to ramp up their own production. The U.S. Department of Energy recently forecast U.S. shale drillers will increase production by more than 120,000 barrels per day in June, just in time for the busy summer driving season.
Plus, there is always the possibility that renewed geopolitical risk will rear its ugly head, which would be an added catalyst for the oil industry and Big Oil stocks.
As a result, investors anticipating a continued rally in oil prices should consider buying shares of the following three Big Oil stocks, each of which pays a hefty dividend as well.
ConocoPhillips (NYSE: COP)
Higher oil prices in the second half of 2017 would be a huge lift for ConocoPhillips, one of the largest exploration and production companies in the U.S.
ConocoPhillips investors were stung by the company’s 67% dividend cut in 2016, but the company has begun to recover. The company raised its dividend by 6% in 2017, thanks to its gradually improving fundamentals. There could be opportunity for further dividend increases, as it undergoes a major cost-cutting program. ConocoPhillips reduced capital spending by half in 2016.
The company reported a massive net loss of $3.6 billion last year. For what it’s worth, it was at least a better performance from the $4.4 billion net loss in the previous year.
Better days lie ahead for ConocoPhillips, as the company is gearing up to take advantage of OPEC supply cuts. The company grew oil total production by 3% last year, to more than 1.5 million barrels per day. The benefits of rising production and falling costs are already being felt: ConocoPhillips reported a net profit of $800 million in the 2017 first quarter, which reversed a $1.5 billion net loss in the same quarter last year.
ConocoPhillips has a current dividend yield of 2.2%, with room for dividend growth in 2018 and beyond.
Occidental Petroleum (NYSE: OXY)
If the price of oil continues to rally, Occidental will be a primary beneficiary, since it continues to grow production each year. Total production rose 7% in 2016, with more growth to come. The reason for this is because Occidental has top-quality acreage in the Permian Basin, one of the premier oil fields in the U.S.
Occidental is the top oil producer in the region, with more than 20,000 wells in operation. Its Permian production rose by 13% last year, and the company expects up to 20% production growth this year.
If oil continues to climb, it could be a massive tailwind for Occidental. The company generated $2.5 billion of operating cash flow last year. Future cash flow stands to grow, thanks to higher oil prices as well as capital spending reductions. Occidental cut its capital expenditures by nearly half last year, and is cutting production costs.
Continued growth will allow Occidental to sustain its hefty 5% dividend.
Helmerich & Payne (NYSE: HP)
Helmerich & Payne is an oilfield services company that provides oil rigs and related drilling equipment. Its financial performance is closely tied to the price of oil — when WTI crude crashed in 2014-2015, so did demand for oil rigs. This caused the company to report a net loss of more than $50 million in 2016.
But now that drilling activity has resumed, Big Oil is starting to put more rigs back into operation. This has resulted in notable improvement in Helmerich & Payne’s financial performance to start 2017. For example, the company’s U.S. onshore contracted rig count rose by 41 rigs last quarter, compared to the end of 2016. Helmerich & Payne’s market share also rose last quarter, from 17%-19%.
The company reported a net loss of $49 million last quarter, but that is still a marked improvement from the $73 million loss in the final quarter of 2016. If oil prices continue rising, it won’t be long before Helmerich & Payne returns to sustained profitability. Management expects drilling activity to continue improving in the current quarter.
Helmerich & Payne pays a dividend of nearly 5%.