Juice Your Portfolio With These Dividend-Paying Oil Stocks

Crude oil prices fell to the $102 mark this week, as investors ponder the likelihood of a US government shutdown barreling down the pike.

“A brief disruption to normal US economic activities shouldn’t have much impact on fourth-quarter GDP,” wrote Jim Ritterbusch, head of the energy trading advisory firm Ritterbusch and Associates, in a research note this week. “But the oil market could still get hung up in a broad based reduction in risk appetite if global equities and other asset classes such as the metals see some significant downside.”

Not helping matters is weak economic data from China, the second-largest oil-consuming country behind the United States.

Uncertainty in the oil market may steer investors away from oil and gas stocks, but there is one solid option on the table for value and liquidity-minded investors: dividend paying oil stocks.

“Considering the turbulent market dynamics of the energy industry, we always advocate the relatively low-risk conglomerate business structures of the large-cap integrateds, with their fortress-like balance sheets, ample free cash flows even in a low oil price environment and growing dividends,” says Zacks Investment Research, in a September, 2013 research note.

Zacks is big on Chevron Corp (NYSE: CVX) as a good energy dividend play.

The stock is trading at $121 per share and analysts expect it to rise over $130 before the year is out. Better yet, Chevron’s dividend payout of 3.30 percent is one of the strongest and safest bets in the industry. Couple that with a steady financials story and Chevron should be at the top of the list of dividend-paying oil stocks.

“Our preferred name in this group remains Chevron…Its current oil and gas development project pipeline is among the best in the industry, boasting large, multiyear projects,” says Zacks. “Additionally, Chevron possesses one of the healthiest balance sheets among peers, which helps it to capitalize on investment opportunities with the option to make strategic acquisitions.”

Chevron’s dividend story is intriguing, and also a profitable one for long-term investors. All told, Chevron’s dividend has shot up well over 150 percent since 2002, and its cash balance has risen by a staggering 685 percent. With huge cash reserves and a solid 3.10 percent dividend rate, Zacks says CVX is a real keeper as a dividend play.

Zacks also likes National Oilwell Varco (NYSE: NOV), in the oilfield services group.

Analysts say NOV is one of the biggest manufacturers of drilling equipment in the world with an impressive business model, and that the company’s large installed base of rigs worldwide provides for a steady recurring revenue stream through demand for maintenance, parts and other expendable products.??

“NOV’s recently completed acquisition of smaller rival Robbins & Myers will allow the energy equipment contractor to broaden scale and scope of the solutions that it offers to oil and gas customers worldwide,” Zacks says. “NOV, which ranks ahead of Cameron International Corp (NYSE: CAM) as the biggest US maker of oilfield equipment, has a strong balance sheet with a debt to capitalization ratio of 17.3 percent. Moreover, since it commenced paying dividends in 2009, management has increased the payout every year. This indicates NOV’s healthy financial position.”

The stock is trading at $78 per share this week, and the consensus is that NOV will rise to $85 per share. It offers a dividend payout of 1.30 percent per share.

Another good energy dividend play is ExxonMobil (NYSE: XOM). The oil giant has been paying out dividends without missing a single beat since the 1800s, and has bumped up those dividend payouts every year for 30 years.

The stock is trading at $84 per share at the end of September, and should have no trouble popping through $95 per share in the next 90 days. The company offers a healthy dividend rate of 2.90 percent per share, and has a one-year dividend growth rate of 18.2 percent, which is a high dividend growth rate not just for the energy sector, but for any sector.

Another oil stock offering a high growth-rate dividend story is Occidental Petroleum (NYSE: OXY). Like XOM, Occidental offers a one-year dividend growth rate of 18 percent, and pays shareholders 2.30 percent per share.

OXY is trading at $93 per share right now, with room to grow by year-end. Susquehanna Investments recently upgraded Occidental to “positive” from “neutral”, citing expectations of a California deal and potential value from restructuring. It pegs OXY stock’s upside at $115 per share.

TheStreet.com agrees, saying OXY share price “is going higher.”

With the oil market once again at sixes and sevens due to a potential government shutdown, and a little trouble in big China, the common sense energy plays right now are the above mentioned dividend stocks.

Brian O’Connell is an investment analyst at Investing Daily. He has appeared as an expert financial commentator on CNN, NPR, Fox News, Bloomberg, CNBC, C-Span, CBS Radio, and many other media broadcast outlets.