Oil is currently trading at a low of $56 a barrel, down from a high of $115 a barrel as of September as investors remain wary for how long the dip will continue. As giant oil producing nations continue to react angrily to the low oil prices, so have investors resorted to shunning some of the stocks that are not offering impressive dividends at the moment. Barron’s Avi Salzman believes Royal Dutch Shell plc (ADR) (NYSE:RDS.A), Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) remain some of the top picks in the space due to their high dividends.
Shares of oil and gas stocks are down by 29% since June while the S &P 500 has rallied by 6% meaning a majority of the players in this space have been affected on their ability to offer impressive dividends. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) boosts of a 5.5% dividend yield with a cash balance of $19 billion that remains in jeopardy.
CEO, Ben Van Beurden, has already stated that cost-cutting plans are in place and it is expected to bolster free cash flow going forward. The company is also poised to reduce its production of oil and gas by 11% that should put it in a stronger position even with a further decline in oil prices.
Chevron Corporation (NYSE:CVX) is another exciting pick in the space with a 3.8% dividend yield that looks set to stay in play for a long time. The company continues to spend heavily on capital projects including a $54 billion investment in a natural gas project in Australia.
Occidental Petroleum Corporation (NYSE:OXY) may be well exposed to falling oil prices but has one of the best cash balances in the industry that should make it an exciting pick. The company has no debt and offers a 3.5% dividend yield which is expected to continue growing with a further dip in oil prices. Exxon Mobil Corporation (NYSE:XOM) has only fallen down by 10% compared to the industry average of 29% weighted mostly by its purchase of gas explorer XTO
At the current oil prices EOG Resources Inc. (NYSE:EOG), looks like a value pick despite having sunk by 20% since June. The company continues to choose its drilling spots carefully so as not to face the full effects of a further drop in oil prices.
A 20% drop since June has seen Schlumberger Limited (NYSE:SLB) trade at 15.9 times forward earnings which is below its average multiple of 16.9 times. The company also continues to choose its spots carefully that should offer it more protection on a downturn.
Large oil producing companies like Royal Dutch Shell plc (ADR) (NYSE:RDS.A), Chevron Corporation (NYSE:CVX) and Chevron are expected to fall the least going forward compared to small caps in the space. It will take some time for the supply and demand imbalance causing the drop to sort itself in the short run as demand is also poised to fall below its historic growth rate.
There is belief brewing in Wall Street that oil prices will rise to trade at between $70 and $75 with $90 acting as the ceiling.
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