Energy stocks for a Chinese power play
Most integrated energy firms are keeping their dividends intact in a dull market, says this advisory, but two big Chinese stocks are doing more.
Crude oil is above $80 a barrel. Should that have folks running out to buy energy stocks?
Not based on the track record so far this year, says one U.S. advisory.
Energy companies have been among the weakest groups on the stock market in 2009, says Ms. Genia Turanova, writing for The Complete Investor.
On the S&P 500 Index, only telecoms and utilities have been more sluggish than oil and gas firms.
But Ms. Turanova is looking at this question from a specific point of view — dividends.
She looks at the energy stocks in the advisory’s Income Portfolio and finds that for the most part, they are keeping their dividends intact.
And two stocks are doing much more than that — China’s top energy firms are running ahead of their North American and European brethren.
So let’s see how big energy is paying off these days in different parts of the globe.
We’ll start at home. Although it isn’t highlighted in this article, we feel compelled to point out that one of the firms in the advisory’s Income Portfolio is Canadian Oil Sands Trust (TSX-COS.UN; OTC-COSWF).
This Alberta giant did cut its distribution, of course. It now stands at $1.00 and yields 3.2 per cent. And it has kept its place in this portfolio.
Not in lock step
“It wasn’t surprising when shares of most energy-related companies dropped sharply in 2008 as oil prices plunged,” says Ms. Turanova. “But with oil prices more than doubling this year, the big surprise has been that most integrated oil companies have failed to recover.”
The author will not predict when the large oil companies might close the gap. “We do know, however, that their balance sheets have remained strong and dividends mostly intact.”
The two American entries in the Income Portfolio have kept up their dividends, although they’re not exactly marching in lock step. Chevron (NYSE-CVX) actually raised its dividend by 5 per cent. It stands at $2.72 and yields 3.6 per cent.
ConocoPhillips (NYSE-COP) has been tumbling. Its prosperity is too closely tied to depressed natural gas prices. Mr. Warren Buffett’s Berkshire Hathaway has sold off 20 per cent of its 80 million shares of the firm. Still, it expressed confidence in the company’s future. And the dividend has been maintained at $2.00. The yield is 3.9 per cent.
One stock in the portfolio has sliced the dividend. Italy’s largest energy firm, Eni SpA (NYSE-E) plans to cut its interim dividend after poor second quarter earnings.
“While disappointing, the cut still amounts to only about 25 per cent of last year’s interim dividend, leaving the yield at nearly 6 per cent,” says Ms. Turanova. And growth prospects are good, so this Italian firm doesn’t get the boot from the portfolio.
It’s a different story in the Orient.
Raising gasoline prices
The two Chinese companies in the portfolio “have come on strong, outperforming both the market and analysts’ expectations,” Ms. Turanova informs us.
In the first half of 2009, PetroChina (NYSE-PTR) saw its profits swell by 26 per cent, rising to 31.5 billion yuan ($US 4.6 billion) on record earnings of 17.2 billion yuan. This big leap came from its refining business.
As demand for natural gas rises in China, the company expects to maintain double-digit growth in its gas operations in the years ahead.
“It’s worth noting that analysts have often viewed PetroChina negatively because of China’s policy of keeping fuel prices artificially low,” says the author. “Earlier this year, however, the government instituted a new pricing system that allowed the company to raise gasoline and diesel prices by as much as 25 per cent.”
Moving in step with crude oil prices, the company should see its refining margins improve. It could control as much as 40 per cent of all of China’s refining output. PetroChina yields 2.9 per cent on a substantial dividend of $3.64.
Overseas shopping spree
CNOOC (NYSE-CEO), or the Chinese National Offshore Oil Corporation, also beat expectations with higher production and lower costs.
“To meet China’s energy demand, the company plans to step up exploration and acquisitions,” states Ms. Turanova, “joining PetroChina in a potential overseas shopping spree as China, the world’s second-biggest energy consumer, moves to secure supplies.”
CNOOC’s hefty dividend of $5.16 is yielding 3.2 per cent at the moment.
It’s hardly surprising that both of these big Chinese firms hold their places in the advisory’s Income Portfolio. China’s economic recovery should keep both companies humming, the author concludes.
While many big oil companies around the globe are faithfully paying the dividend while you wait for their shares to elevate, there appears to be more energy in Chinese energy stocks just now.
The question is, when does the rise in crude oil prices turn into a worldwide gusher for investors?
|
E-mail this article
Printer-Friendly
