There is no doubt: growth is residing in the energy sector nowadays. So for those seeking dividend income growth and safety, I suggest you choose from among the top energy stocks out there. Below I’ve chosen stocks that have impressive records of dividend growth in the recent past: ConocoPhillips (NYSE:COP), Chevron Corporation (NYSE:CVX), and EOG Resources, Inc. (NYSE:EOG). You will find that these have healthy payout ratios, thus demonstrating their ability for sustainable dividend growth in the future. And since these are picked from among the top-rated companies in the sector, you can be assured of sound fundamentals that determine dividend safety. If you have doubts, read on and check them out yourself.
Sources: Nasdaq.com, Finviz.com, Ycharts.com, and Yahoo Finance; data as of Feb. 14, 2013
ConocoPhillips has been increasing its dividends by an average rate of 11.78 percent for the past 3 years. Although the company has not made an increase in 2012, the dividend amount of $2.64 per share is already very high. Given the fundamentals of COP, this is likely to continue into the future. ConocoPhillips’ valuation is at a healthy level, as shown by its P/E ratio of 9.80. It is highly profitable, with a net margin of 12.07%. In fact, if you look deeper at the trend, its profitability has significantly improved in 2011 and 2012 compared to the previous years. In terms of earnings, the company has been impressively surpassing consensus estimates for the last 3 quarters now. Thanks to the large amount of cash that the company is sitting on, its payout ratio (using cash flow) is at a healthy level of 23%.
Chevron Corporation (NYSE:CVX)
Chevron was able to grow its dividends within the last 3 years by an average rate of 9.7 percent. This is very impressive given the high dividend amount that it is already paying its investors. In 2012, the annualized amount was $3.51 per share. Like COP, Chevron has a low P/E ratio of 8.69 and a high profit margin, at 10.89%. The large amount of cash it has allows it to distribute high dividend amounts and still have a payout ratio based on a cash flow of 22.8 percent. This company relies very minimally on debt to finance its operations; its debt-equity ratio is a low 0.09. Meanwhile, CVX failed to meet the consensus estimate for its earnings in the fiscal quarter ending in December 2012, but by a small margin of 1.65 percent. And this should not bother investors given its encouraging growth prospects. Among the future sources of growth in Chevron’s operations is the success of its exploration activities in Australia. If these materialize and drilling becomes successful, Chevron is likely to lead in the supply of natural gas and LNG in the Asia-Pacific belt.