3 Oil Dividend Stocks to Buy if OPEC Freezes Production

The major oil production trade body OPEC is scheduled to meet in Algeria Sept. 26-28 to discuss ways to limit output. Even the potential for a production cut or freeze has oil moving higher. Since West Texas Intermediate fell to $41 per barrel and was threatening to break back below $40, oil has rallied back to near $44 as analysts increasingly believe OPEC could make a move this time.oilprices

Of course, this isn’t the first time that an OPEC meeting had analysts in a frenzy. Nevertheless, if OPEC does finally decide to cut or freeze production, it would likely result in a higher oil prices. That would be a boon for the oil companies that are most highly reliant on the price of oil.

E&P Majors Stand to Win the Most from a Freeze

The companies in the oil patch that would be the biggest beneficiaries of an OPEC move would be the exploration and production companies, or E&Ps. These are companies engaged in discovering and drilling for oil.

The reason that they would be the biggest winners from a production cut or freeze from OPEC is that they are highly tethered to the price of oil. Unlike the integrated majors like ExxonMobil (NYSE: XOM), which have large refining and chemicals businesses that do not depend entirely on commodity prices, E&P firms profit solely from the price of oil they get after they drill.

As a result, look for these three E&P dividend stocks to rally if OPEC limits output:

Oil Dividend Stocks: Occidental Petroleum (NYSE: OXY)

The decline in oil prices has weighed on Occidental Petroleum’s financial performance this year, but it offers a hefty 4.2% dividend yield. That means investors at least get paid well to be patient, and the company has enough cash flow to sustain its dividend, even at these low oil prices.

Occidental generated $3.3 billion of net cash from operating activities last year, and utilized $2.2 billion to pay cash dividends to shareholders.

Occidental could be a huge winner from higher oil prices because, unlike many others in the oil space, it has continued to increase production, even at these low prices. For example, Occidental increased total oil and gas production by 14% last year, to 652,000 barrels of oil equivalents per day.

Should oil prices rise, Occidental is likely to continue ramping up its production, as the company has considerable reserves. To begin 2016, Occidental had 2.2 billion barrels of proved oil and gas reserves, 63% of which were located in the U.S.

Oil Dividend Stocks: ConocoPhillips (NYSE: COP)

ConocoPhillips is often grouped with ExxonMobil and the other Big Oil majors, but it’s an independent E&P after spinning off its refining and midstream business in recent years. This has made it almost entirely reliant on the price of oil, for better or worse.

ConocoPhillips lost $4.4 billion in 2015, due to falling oil prices, and followed this up with a $2 billion net loss over the first six months of 2016.

Because of this, ConocoPhillips cut its dividend this year to preserve cash, but it still offers investors a solid 2.5% dividend yield, and the chance for dividend growth going forward if oil prices rise. The company states in its investor presentations that its earnings fluctuate $100 million to $120 million for every $1 change in the price of Brent crude, and another $30 million to $40 million for every $1 change in the price of WTI crude.

As a result, if each oil benchmark rises approximately $10 to $50 per barrel for example, it would theoretically add as much as $1.6 billion to ConocoPhillips’ bottom line.

Oil Dividend Stocks: EOG Resources (NYSE: EOG)

EOG’s dividend yield isn’t as high as its industry peers; the stock yields 0.7%. The company chooses to reinvest more of its cash flow back into purchasing new oil acreage. This strategy has provided the company with a strong footprint in some of the premier oil fields in the U.S.

EOG is a major player in the Permian Basin and Eagle Ford shale.

And, like Occidental, EOG has really ramped up production in recent years. In fact, its total annual crude oil and condensate production has increased 80% since 2012.

As a result, EOG could be the best growth pick of the three, if and when OPEC limits output.

Published by Wyatt Investment Research at