2012 Strategy: Investing In Oil Stocks With Strong Dividends ...

One of the best ways to make money in the long-term is by investing in a trend. In the past several months, a couple of trends have emerged even more clearly. One of these trends is the increasing amount of investor interest in dividend stocks. Investors have fewer options for income investing since rates offered by certificates of deposits, money market accounts, and others, are close to zero. The U.S. Federal Reserve Bank recently announced that it plans to keep rates very low, until at least 2014. This has created demand for dividend stocks that produce strong yields. The second major trend that is clearly emerging is rising oil prices. That trend is being supported by tensions over Iran's nuclear program, some mild improvements in U.S. economic data, plus investors who are seeking hard assets like oil and gold because too many central banks are printing money and creating loose money policies. Loose fiscal policies often lead to inflation and investors want to protect the purchasing value of their money by investing in hard assets.

The trend of rising oil and investors seeking yields through dividend-paying stocks is potentially set to continue through 2012. Based on statements from the Federal Reserve, rates are going to stay low for the foreseeable future, and oil prices are likely to stay strong, if not rise further. Investors should position themselves to benefit from both of these trends in the coming years by investing in stocks that offer exposure to both dividends and oil. Here are some names that combine oil and solid dividends:

Total SA (TOT) is a Paris, France based oil giant, with worldwide operations. It has projects in Uganda, Nigeria, the Middle East, and many other locations. This company appears to be one of the best values in the oil sector today. The European debt crisis has pushed most major Euro stocks lower and this has created a unique buying opportunity with Total. While investors are correct to believe that a weak European economy will affect companies based in the Eurozone, it's different for a company like Total, because the price of oil is not solely dependent on European economic strength. Plus, the price of oil is rising in spite of the economic concerns. Total offers investors a dividend that is well-above average with a yield of 4.5%. It also offers a price to earnings ratio of about 8 times earnings, which is well below the market average. Finally, the geographic diversification of Total's operations, combined with a solid balance sheet, makes this stock a great way to create both yield and inflation-protection in a portfolio. Total shares have recently found support at about $52 per share. Dips to that level appear particularly attractive.

Here are some key points for TOT:

• Current share price: $56.07
• The 52 week range is $40 to $64.44
• Earnings estimates for 2011: $7.04 per share
• Earnings estimates for 2012: $7.08 per share
• Annual dividend: about $2.57 per share which yields about 4.5%

Eni SPA (E) is an Italian oil company, that engages in refining, and exploration. It also operates service stations. Just like most companies that are based in Europe, these shares have been impacted by the negative environment caused by the European debt crisis. Eni recently reported a full-year 2011 adjusted operating profit of ?17.97 billion, which is an increase of about 4% when compared to 2010. The company was impacted from the crisis in Libya in 2011, but now about 80% of Eni's Libyan operations are back to normal. The company could see significant future growth thanks to a major gas field it discovered off the coast of Mozambique. The "Mamba" discovery appears to be massive, it is estimated that the total volume of gas is about 30 Tcf (Trillion Cubic Feet). For 2012 guidance, Eni has modeled for a full-year average price of $90 a barrel for the Brent crude benchmark. With oil well over $100 per barrel now, those estimates appear low and that means Eni could see better than expected results in the next few quarters. Eni shares started this year at about $41 per share and have been trending higher. The stock appears to have support at about $43.50 per share, and dips to that level look like an attractive entry point.

Here are some key points for E:

• Current share price: $46.20
• The 52 week range is $32.44 to $53.80
• Earnings estimates for 2011: $4.85 per share
• Earnings estimates for 2012: $4.60 per share
• Annual dividend: about $2.04 per share which yields about 4.3%

Exxon (XOM) is one of the most valuable companies in the world and it is considered to be a "blue chip" stock within the oil sector by many investors. At first glance, it may not make sense for some investors to get excited about Exxon for the dividend, because the yield is currently at about 2.2%. This is lower than a number of other major energy stocks and it is close to the average yield for the S&P 500 Index. However, Exxon still deserves consideration because of it has blue chip status and more importantly, a low payout ratio when compared to earnings. When you consider that Exxon has earnings power of about $9 per share, and the dividend is below $2, it's easy to see how much room Exxon has to raise the dividend in the future. For example, Eni is expected to earn about half as much per share as Exxon, and yet it offers a dividend that is about 16 cents higher than Exxon's. This leaves plenty of room for future dividend hikes. Exxon's strong balance sheet and a very significant level of oil reserves also supports the possibility for higher dividends. It's important for investors to consider these factors. Current yield is important, but dividend growth can be even more meaningful for long-term investors. In 2007, Exxon's quarterly dividend was 32 cents per share, but now it is 47 cents per share. That's about a 50% increase in just around 5 years. Exxon shares appear to have support around $84 per share, so buying on dips at that level is likely to reward long-term investors.

Here are some key points for XOM:

• Current share price: $86.50
• The 52 week range is $67.03 to $88.13
• Earnings estimates for 2011: $8.29 per share
• Earnings estimates for 2012: $9.07 per share
• Annual dividend: about $1.88 per share which yields about 2.2%

ConocoPhillips (COP) has worldwide operations involving exploration, production, refining, and transportation of petroleum products. This stock has quite a few potential positives going for it. First of all, this company plans to separate the refining business which will be called "Phillips 66". The spin-off is expected to be completed in the next few months and once complete, it will be a publicly-traded company. This could act as an upside catalyst for the shares as the spin-off date draws near. Another huge positive is that the dividend yield is already above average at about 3.5%. The dividend payments from ConocoPhillips also has a history of growth. For example, in 2005, the quarterly dividend was 31 cents per share. But by 2012, the quarterly dividend has been raised to 66 cents per share. That is more than double, in just about 7 years. This feat is even more impressive when you consider it occurred during a period of economic turmoil and when many assets and values were going down, not up by over 100%. However, this stock was trading at about $68 per share in early February, and it has spiked up about 12% in just weeks. I think the stock is a bit ahead of itself, and that could make it vulnerable to a pullback. A market correction or a drop in the price of oil might offer patient investors a chance at buying for about $70 per share which appears to be a strong support level. While the stock has long-term upside potential, I would wait for a significant pullback before buying.

Here are some key points for COP:

• Current share price: $76.55
• The 52 week range is $58.65 to $81.80
• Earnings estimates for 2011: $8.26 per share
• Earnings estimates for 2012: $8.74 per share
• Annual dividend: $2.64 per share which yields 3.5%

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: http://seekingalpha.com/article/404801-2012-strategy-investing-in-oil-stocks-with-strong-dividends

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