Taking Stock

0
677
Tony Crowell
Tony Crowell

Gas, Oil And Dividends

Gas pump prices dropped to their lowest levels in four years. This gives U.S. drivers some extra shopping power. The slide followed the wholesale barrel price, down 40% since June, skidding even more when OPEC did not reduce production, as was the rumor. Trading stocks on rumors has never been a successful strategy nor has panicked selling, which spread into quality oil stocks. This anomaly created nicely priced opportunities for those who retain perspective.

Volatile energy prices in a world of volatile geopolitical pressures are good reasons to look to the proven oil giants. The big four are Exxon Mobil (XOM-$93), Royal Dutch (RDSA-$67), PetroChina (PTR-$108) and Chevron (CVX-$111). Currently, the U.S. economy is showing more resurgent growth than Europe, China or emerging markets, giving a boost to the home markets of the U.S. companies.

Chevron’s sales exceed $200 billion and Exxon’s are twice that. Each has huge financial resources to absorb passing problems that provide headline “news” for the financial media. Both have been good to their shareholders. Exxon’s dividend currently yields 2.9% and the company has increased it for 31 consecutive years. Chevron yields 3.8 percent with 19 straight years of increases. It’s growing faster and would be my preference.

The thirty-year Treasury bond currently yields 3.0%. At some point, probably late next year, the Fed will allow interest rates to start back up. As bond prices drop when rates rise, that makes an investment like Chevron even more attractive. At some point, Treasury yields will get up to Chevron’s current yield, at which time it is almost certain that its dividend will be higher.

EOG (EOG-$91), recommended in October, now yields only 0.70% but it has bumped its dividend for 14 straight years. This very well managed company is hedging more than half its production and plans to increase its production next year. It remains a current buy as does Nat’l Oilwell Varco (NOV-$67), a leading global provider of oilfield services. It also makes the dividend honor roll with three straight annual bumps and a 2.7% current yield.

Most investors would probably increase their returns if they focused on building portfolios with stocks like these rather than anxiously reacting to rumors, tips and “news.” Energy stocks make up the only sector in the S&P 500 down this year, another argument for diversification among sectors, provided this does not become an excuse for complacent tolerance of mediocre performance.

Habitual overachievers include Disney (DIS-$93), which just raised its dividend and Ecolab (ECL-$109), which makes the world cleaner and safer with a variety of products and services and has just increased its dividend for the 28th straight year. In the tech sector, Intel (INTC-$37) has a 10-year streak. In finance, Visa (V-$261) has a 5-year record and BlackRock (BLK-$359) has four.

The medical sector has been strong this year and its more established companies have been good to their shareholders. Bristol-Myers (BMY-$59) has four years of dividend bumps and Novo-Nordisk (NVO-$45) has seventeen. This Danish-based company is our second largest position (after Apple). It is the world’s largest provider of products for diabetes care. Of course, in this sector, Johnson & Johnson (JNJ-$107) leads with a 51-year streak.

A recent Initial Public Offering provides a probable player among these proven candidates for holding for the long-term. Paramount Group (PGRE-$18) went public last month, raising $2.6 billion in the largest IPO for a Real Estate Investment Trust, or REIT. The company is unique among REIT’s in its current concentration on only 12 properties, however, they are all top-tier office towers in midtown Manhattan, Washington, D.C. and San Francisco. These include the 48-story Paramount Tower that houses two Broadway theatres as well as many floors of office space.

Paramount will declare its first dividend next month, which will probably initiate only a modest 2% yield. Its portfolio of quality assets with rent increases ahead and its substantial balance sheet with relatively little debt offer the prospect of both increasing income and long-term price appreciation.

 

 

Tony Crowell manages stock portfolios for individuals and their trust and retirement accounts with CROWELL•ROBERTS Investment Counsel, a registered investment advisor in Laguna Beach since 1995. [email protected] 949.494.1376/800.697.2622

www.crowellroberts.com

 

 

 

Share this:

LEAVE A REPLY

Please enter your comment!
Please enter your name here