By Alex Kimani
- Many energy companies are now focusing on returning value to shareholders.
- Dividends and share buybacks are increasing across the energy sector.
- Royalty trusts and MLPs are increasingly popular among U.S. investors.
The oil and gas sector finished last week as the market's biggest winner, surging 10.2% alongside rising crude oil prices with analysts saying the looming European Union embargo on Russian oil has the makings of an "acute supply squeeze."
WTI crude futures jumped 4.9% for the week to $109.77/bbl; July Brent futures also added 4.9% to $112.39/bbl, while gasoline futures in New York settled at a record-high $3.76/gal with the U.S. summer driving season a mere three weeks away.
With impressive top- and bottom-line growth, many top energy companies are returning more capital to shareholders in the form of dividends and share buybacks. Companies usually repurchase shares when they believe they are undervalued, an added bonus for oil and gas bulls.
If you are looking for solid energy dividends, here are the top aristocrats and payout leaders.
1. VOC Energy Trust
- Industry: Royalty Trust
- Market Cap: $118.2M
- Dividend Yield (TTM): 12.81%
Houston, Texas-based VOC Energy Trust (NYSE:VOC) is a royalty trust that acquires and holds a term net profits interest of the net proceeds from production and sale of the interests in oil and natural gas properties in the states of Kansas and Texas.
Like Master Limited Partnerships (MLPs), royalty trusts are typically high-dividend, tax-advantaged energy investments that are required to pay out a certain amount of their proceeds to investors.
VOC has an 80% term net profits interest of the net proceeds on the underlying properties. As of Dec. 31, 2021, its underlying properties had interests in 452.5 net producing wells and 51,147.2 net acres.
As of Dec. 31, 2021, the company had proved reserves of approximately 2.9 million barrels of oil equivalent (MMBoe) attributable to the portion of the Kansas underlying properties; and approximately 5.4 MMBoe attributable to the Texas underlying properties.
2. China Petroleum & Chemical Corporation
- Industry: Integrated Oil & Gas
- Market Cap: $74.1B
- Dividend Yield (TTM): 8.90%
Commonly referred to as "Sinopec," China Petroleum & Chemical Corporation (NYSE:SNP) is one of China's leading energy companies. Sinopec engages in the oil and gas and chemical operations in Mainland China, Singapore, and internationally.
Sinopec operates through five segments: Exploration and Production, Refining, Marketing and Distribution, Chemicals, and Corporate and Others. The company explores and develops oil fields, produces crude oil and natural gas, processes and purifies crude oil, and manufactures and sells petroleum products.
Although Sinopec is a top dividend payer, it has joined Li Auto (NASDAQ:LI), Nio (NYSE:NIO) and XPeng Motors (NYSE:XPEV) in the list of Chinese companies facing possible delisting by the SEC, as reported by CnEVPost.
Under the Holding Foreign Companies Accountable Act (HFCAA), the SEC has the authority to delist foreign-listed companies from the exchange if they fail to file reports required by the Public Company Accounting Oversight Board for three consecutive years.
The SEC list, updated on May 4, indicates that 88 companies have been added to the provisional list of issuers identified. The companies have until May 25 to provide evidence to the SEC that they do not qualify for delisting.
If unable to do so, they will be placed on a conclusive list of companies that will be required to file the SEC's required documents within three years. And if they fail to do so, they will be delisted in early 2024, following the disclosure of their 2023 annual report.
3. Rattler Midstream
- Industry: Master Limited Partnership (MLP)
- Market Cap: $2.0B
- Dividend Yield (TTM): 8.82%
Rattler Midstream LP (NASDAQ:RTLR) is an MLP that provides water-related services to oil and gas shale producer Diamondback Energy (NASDAQ:FANG) in the Permian Basin in West Texas.
Rattler's management has been aggressively cutting back on capital expenditure which has helped support sustained free cash flow generation. Further, Rattler Midstream is not present on all the company acreage of Diamondback Energy which allows it to grow revenue at a time when Diamondback Energy has forecast a period of no growth.
For decades, master limited partnerships, or MLPs, have been a source of reliable, high-yield income for energy investors. An MLP is required by law to derive at least 90% of its cash flow from commodities, natural resources, or real estate.
They, in turn, distribute cash to shareholders instead of paying dividends like a standard company would. MLPs combine the liquidity of publicly traded companies and the tax benefits of private partnerships because profits are taxed only when investors receive distributions.
The biggest draw of MLPs is that they are considered pass-through entities under the U.S. federal tax code. Whereas most corporate earnings are taxed twice (first through earnings and again through dividends), the pass-through status of MLPs allows them to avoid this double taxation because earnings are not taxed at the corporate level.
Another key benefit: Midstream MLPs act as toll collectors for the energy companies that use their pipelines. As such, their cash flows are protected by long-term, take-or-pay agreements, meaning they are less susceptible to commodity price fluctuations.
Other top-paying MLPs are:
Magellan Midstream Partners, L.P. (NYSE:MMP) - 8.45% Fwd Yield
Plains All American Pipeline, L.P. (NASDAQ:PAA) - 7.97% Fwd Yield
Plains GP Holdings, L.P. (NASDAQ:PAGP) - 7.49% Fwd Yield
Enterprise Products Partners L.P. (NYSE:EPD) - 6.90% Fwd Yield
Kinder Morgan Inc. (NYSE:KMI) - 5.75% Fwd Yield
MPLX LP (NYSE:MPLX) - 5.28% Fwd Yield
4. Devon Corp.
- Industry: Oil & Gas Exploration and Production (E&P)
- Market Cap: $46.0B
- Dividend Yield: 7.29%
Devon Energy Corporation (NYSE:DVN) is an Oklahoma City, Oklahoma-based independent energy company that primarily engages in the exploration, development, and production of oil, natural gas, and natural gas liquids in the United States. It operates approximately 5,134 gross wells.
Last week, Devon reported Q1 results, beating earnings estimates, while generating strong free cash flow and recommitting to shareholder returns in 2022:
- Earnings - the Company reported $1.88 in adjusted earnings per share for the quarter, versus Street expectations for $1.76.
- Cash flow - free cash flow reached a record of $1.3b in the quarter, or 3.4% of Devon's current market cap.
- Capital allocation - management bumped the dividend 27% to $1.27 (8.7% yield), and expanded the share buyback program while retiring 1.1% of average diluted shares outstanding during the quarter.
- Guidance - the Company made no change to capital or production guidance.
Ahead of Q1 results, investors were focused on management's reaction to elevated commodity prices and pressure to increase production following the war in Ukraine.
CEO Muncrief commented that "looking ahead, we are unwavering in our commitment to capital discipline and remain focused on delivering the objectives that underpin our current year plan."
Suggesting that after years of outspending cash flow on production growth, Devon is firmly focused on shareholder returns in 2022.
5. Exxon Mobil
- Industry: Integrated Oil & Gas
- Market Cap: $386.3B
- Dividend Yield (FWD): 3.84%
One of the largest energy companies in the world, Exxon Mobil Corporation (NYSE:XOM) explores for and produces crude oil and natural gas in the United States and internationally.
It operates through Upstream, Downstream, and Chemical segments. The company is also involved in the manufacture, trade, transport, and sale of crude oil, natural gas, petroleum products, petrochemicals, and other specialty products. It manufactures and sells petrochemicals, including olefins, polyolefins, aromatics, and various other petrochemicals and captures and stores carbon, hydrogen, and biofuels.
As of Dec. 31, 2021, it had approximately 20,528 net operated wells with proved reserves. The company was founded in 1870 and is headquartered in Irving, Texas.
Last month, Exxon Mobil tripled its share-buyback program to as much as $30 billion after profits surged amid Russia's invasion of Ukraine and a rally in worldwide energy prices.
"We'd be looking to get $15 billion done a year, again, looking to sustain the program kind of more consistently over this 2-year period," said Kathryn Mikells, Exxon's chief financial officer.
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