Energy ETFs: Attractive Valuations and Dividends

ETF Trends

The outlook for integrated oil and gas exploration and production includes strong fundamentals. S&P Capital IQ has a strong outlook for energy demand, higher oil prices and North American oil production,which supports investment in a related exchange traded fund.

“We think integrated oils such as Exxon mobile (XOM) and Chevron ( C)  are attractive under current market conditions because of their low debt levels, strong cash positions, free cash flow generation and attractive valuations and dividend yields. Strong oil prices,particularly overseas, and a focus on more profitable oil production are driving financial returns,” S&P Capital wrote in a note. [ETF Chart of the Day: Oil & Gas]

The Energy Select Sector SPDR (XLE)  can give investors exposure to a broad range of energy companies. The fund has large holdings in oil and gas equipment and services, storage and transportation and refining and marketing. S&P Capital IQ ranks the ETF “Overweight”. [Beaten Up Energy ETFs Look to Recover with Oil Prices]

The volatility that the energy sector has also supports the case for an energy ETF. XLE is up 8.2%,after a slow start in 2012, which is almost double what the S&P 500 has returned. The energy sector accounts for about 11.4% in the S&P 500 Index. As oil and gas has rallied, the broad equity market has also bounced back, reports The ETF professor on Benzinga. [Use Energy ETFs to Hedge Against Middle East Risks]

Other energy ETFs that give investors diversified exposure to the upside of the sector:

  • PowerShares Dynamic Energy Exploration & Production Portfolio (PXE)
  • Vanguard Energy ETF (VDE)
  • Market Vectors Unconventional Oil& Gas ETF (FRAK)
  • iShares S&P Global Energy Index Fund (IXC)
  Energy Select Sector SPDR

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Tisha Guerrero contributed to this article.  Story updated to correct energy ETF tickers.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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