Exxon Mobil Corporation (XOM) And 4 Long-Term Plays on the Natural Gas Rebound

But wait, there’s more

On February 14, 2013, the two firms established a conventional assets partnership that provided a total of $573 million in cash proceeds to EXCO and increased EXCO’s liquidity to $474 million. EXCO has used some of the proceeds to repay a portion of its revolving credit facility. EXCO and Harbinger Group currently own economic interests in the partnership of 25.5% and 74.5%, respectively. Back in March, EXCO hiked its dividend by 25%, which boosted its yield to the current 2.6%. EXCO Resources Inc (NYSE:XCO)’s payout ratio is 57% of its current-year EPS estimate. However, the stock is pricey, trading at a forward P/E of 23x.

However, it may have erred in spinning off Cenovus Energy (CVE), its Canadian onshore oil business, too soon, as keeping it could have helped Encana Corporation (USA) (NYSE:ECA) weather the natural gas storm better. ECA is yielding 4.3% on a payout ratio of 125% of its current-year EPS estimate. The payout ratio is expected to improve next year, as analysts forecast the company’s EPS to double from this year’s level.

The company recently amended its Dividend Reinvestment Plan to allow for the issuance of new common stock from its Treasury at a discount of 2% relative to the average market price on the dividend payment date. In terms of valuation, however, the stock is expensive, trading at a forward P/E of 30x—its 2014 earnings multiple is expected to be more acceptable at 15.9x. Last quarter, billionaire Steven Cohen held more than $100 million in this stock.

Final thoughts

In the near term, preferred are stocks of companies such as Exxon Mobil Corporation (NYSE:XOM) that have large natural gas exposure but still benefit from substantial oil and liquids-related revenue sources to mitigate potential natural gas volatility. On the whole, each of the energy players mentioned here have solid growth prospects over the long, long term, and in the interim, solid dividend yields will comfort any investor. Along with market-beating strategies like this, it’s always important to track these types of investment opportunities.

Disclosure: none