Energy Stocks That Meet the Dividend Star Test

YCharts

This is part of a YCharts series analyzing dividend-payers across all 10 sectors of the S&P 500. The initial article explained how to find dividend stars and focused on healthcare stocks. Subsequent articles focused dividend stars among consumer defensive stocks, utility stocks, financial stocks, industrial stocks and consumer cyclical stocks.

Amid a global slump in demand, the energy sector hasn’t been on fire the last few years. But in the first quarter, the 9.6% rise for energy stocks in the S&P 500 nearly kept pace with the market’s 10% rise.

Sifting through the sector using the YChart Stock Screener, only Occidental Petroleum (OXY) and Ensco (ESV) managed to make it past our required hurdles of a current yield of at least 2%, annualized dividend growth over the past five years of at least 8% (the sector median) and a forward PE ratio at or below the 12.2 forecasted for the sector this year.

Both Occidental Petroleum and Ensco also happen to be rated Attractive by YCharts’ proprietary rating analysis.

Occidental Petroleum’s 46% dividend payout ratio is a bit high (the S&P 500 average is 32%) but for a big mature company it’s not worrisome. Nearly $14 billion in EBITDA last year, along with $1.6 billion in cash and $1 billion of free cash flow should support the dividend (total payouts over the past 12 months were $2.12 billion.

More troubling is C-suite turmoil. In February, Oxy’s board announced it was replacing CEO Ray Chazen, who had been on the job for just two years. But in mid April two institutional shareholders came out against the change. Oxy’s stock slumped throughout 2012, but clearly investors were warming to recent strategy changes -- cost containment being one -- as the stock’s 10% year-to-date return is in line with the sector. And on April 11 ISS, a proxy advisor, came out against the re-election of the company’s executive chairman and its lead director, a move that could pave the way for Chazen to stay on the job. The annual meeting is scheduled for May 3rd.

Ensco’s payout ratio is 30%, a smidge less than the market average. With dividend growth averaging near 70% over the past five years and a current dividend yield of 3.4% there’s plenty to like. But one metric worth keeping an eye on is share dilution. Over the past five years, Ensco has added nearly 10% to its outstanding shares. By comparison, sector behemoth Exxon Mobil (XOM) has been focused on reducing its outstanding shares.

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ESV Shares Outstanding 5 Year Growth Chart

When buybacks are factored into the equation, Exxon Mobil’s net payout yield (dividend yield plus the change in outstanding shares) swamps Ensco.

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ESV Net Payout Yield TTM Chart

So why didn’t Exxon Mobil make it onto our list? Its 7.8% five-year annualized dividend growth rate just missed our 8% hurdle. Round up and it would be on the list as its 11.1 forward PE is below average and its current 2.6% dividend yield well above average.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com.


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