We have hit black gold and the secret is out. U.S. oil production recently reached 8.4 million barrels a day, the highest level since 1989. Ultimately, oil production could rise to 9.6 million by 2016.
The huge growth of domestic oil and gas production has made this a booming business in the U.S. But energy is a global market, and worldwide demand is also rising.
The world’s population is on the rise and various emerging economies are urbanizing. The world’s total energy consumption is estimated to grow by 56% from 2010 to 2040. As a result of these favorable demographics, the energy sector is a great place to invest.
Most investors are flocking to big oil companies like Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) to get exposure to the oil and gas boom. But there is one stock that offers a superior dividend and has some of the best exposure to the fast growing shale plays in the U.S.
The company is ConocoPhillips (NYSE:COP). Income investors will find this stock attractive with its 3.5% dividend yield.
That isn’t exactly in high yield territory. Compare this with Exxon Mobil,the largest publicly traded oil and gas company. Exxon’s dividend yield is currently at 2.7%. And that means that the ConocoPhillips dividend is 30% higher.
You may not be that familiar with ConocoPhillips stock. The company spun off its refining and marketing businesses in 2012. And that move makes it the largest pure-play exploration and production company in the world.
It now operates across 27 countries around the world. It produces oil and natural gas in North America, Europe, Asia, and Australia, with the majority of its reserves in stable, low-risk, countries.
ConocoPhillips has exposure to higher-margin liquids production with assets in the Eagle Ford, Bakken and Permian shale plays. During the first quarter, production from the Bakken and Eagle Ford were up 40%. A large portion of its oil and gas production is from unconventional resources in North America.
Wall Street analysts expect ConocoPhillips to derive just over 60% of its total production in 2014 from liquids, which includes oil or natural gas liquids. Compare that to the peer average, which is in the low 50%.
Thanks to this, ConocoPhillips has a net profit margin that is 16%. That’s far above the 10% profit margin that both Exxon Mobil and Chevron deliver. As a result of bigger profits, the company has been able to generously reward shareholders.
ConocoPhillips has a long-term goal of generating annual shareholder returns in the double digits. This includes its robust dividend, share buybacks and stock price growth.
The company has grown its annual dividend payment by 7.5% per year over the last half decade. Its payout ratio is less than 40%, meaning it has plenty of cash flow to increase its dividend. In addition to a generous and growing dividend, the company has reduced its share count by 17% over the last five years.
Shares of ConocoPhillips are up over 30% during the last year. Overall, the company has done a great job of rewarding shareholders over the past couple years.
As far as valuation goes, ConocoPhillips stock trades at a P/E ratio of just under 11. Its industry average P/E ratio is closer to 17 and the stock also trades at a discount to the big oil companies.
The combination of high profit margins, a generous dividend, and share buyback program means that ConocoPhillips stock should continue to reward investors for years to come.
8 Dividend Checks from 1 Stock
It’s one of the best-kept secrets in the market today… an oil company paying out bigger dividends than Exxon and BP. This highly-profitable company rewards shareholders with unannounced “bonus” dividend checks. And it pays them out every quarter. And that’s on top of its regular, scheduled dividends — meaning shareholders are collecting 8 dividend checks a year, all from this one investment. If you’d like to earn some extra income simply by sitting back and collecting these extra dividend checks, then Click here to find out everything you need to know!