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Will Energy Keep Powering Shareholder Portfolio With Returns?

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Richard Russell, who penned Dow Theory Letters, once said, “A stock dividend is something tangible — it’s not an earnings projection; it’s something solid, in hand. A stock dividend is a true return on the investment. Everything else is hope and speculation.”

Over the last few quarters, the Energy sector has been the key driver behind the S&P 500’s year-over-year earnings growth. In fact, the healthy outlook for the crude pricing scenario is expected to boost Energy’s earnings in the coming quarters as well.

With the consistent pressure from investors for more returns, energy companies have started bumping up dividends and authorizing additional share buyback programs.

Investors Turn Focus to Returns

Investors’ sentiments have changed drastically regarding businesses in the U.S. shale spaces. Oil producers are not in a position to focus more on drilling in the domestic shale resources as investors demand more returns from explorers, stated John Hess — CEO of Hess Corporation (HES - Free Report) .

Hess added that since 2017, investors’ priority has shifted to raking in more returns than demanding a ramp-up in drilling activities. In response, energy players have started rewarding investors with dividend payments and share buybacks. (Read more: Will Investors Receive More Returns From US Shale Producers?)

Per our proprietary model, the Energy sector gave out $674 million in dividend payments through first-quarter 2018. Post that, the sector was left with $937 million in free cashflow, which could be invested in growth projects or other areas.

Through the April-to-June quarter of this year, we expect Energy to witness 137% year-over-year earnings growth, considerably higher than 79.6% in the prior quarter. Notably, among all the Zacks Sectors, Energy will probably be the only sector to report triple-digit earnings growth in second-quarter 2018.

More Rewards Await Shareholders

We expect Energy to report $19.2 billion revenues for second-quarter 2018, higher than the respective $15.7 billion, $11.2 billion, $11.2 billion and $8.1 billion reported in the last four quarters. Also, from third-quarter 2018 through second-quarter 2019, Energy is expected to report earnings of $20.8 billion, $20.2 billion, $23 billion and $24.6 billion, respectively.

The strong recovery in crude prices have been backing Energy. Per the U.S. Energy Information Administration (EIA), the average West Texas Intermediate (WTI) crude prices for the month of April, May and June of 2018 was recorded at a respective $66.25 per barrel, $69.98 and $67.87, significantly higher than the year-ago monthly prices of $51.06, $48.48 and $45.18.

Notably, the average monthly crude pricing scenario through second-quarter 2018 was the healthiest in three years. Moreover, heated-up tensions between the United States and Iran and Venezuela supply concerns will likely support oil price in the coming quarters.

Our annual earnings data for the Energy sector seems encouraging as well. As compared to only $38 billion in 2017, Energy is expected to earn $76.2 billion through 2018. We also expect earnings from Energy to grow to $92.8 billion in 2019 and $101.5 billion in 2020.

Companies Returning More toShareholders

Against the backdrop that Energy will continue to generate more earnings, shareholders can expect more rewards in the quarters ahead. We will now discuss four Energy firms that have boosted stockholders’ returns recently and also carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

In terms of production and proved reserves, ConocoPhillips (COP - Free Report) — headquartered in Houston, TX — is the largest oil and gas exploration and production player in the world. From $2 billion, the company has boosted the share buyback program for 2018 to $3 billion. In fact, all the repurchases along with dividend payments for 2018 will likely be financed with operating cashflow.

On top of that, ConocoPhillips has hiked its total authorized stock-buyback plan by $9 billion to as much as $15 billion. (Read More: ConocoPhillips Hikes Share Repurchase Program, Lowers Debt.)

Currently, the company sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Anadarko Petroleum Corporation , headquartered in The Woodlands, TX, is among the leading oil and gas explorers in the globe. The firm has been undertaking initiatives to create value for shareholders.

On Jun 29, the #2 Ranked company concluded its previous $3-billion share repurchase authorization. The recent authorization created another coffer of $1 billion for shares to be repurchased before the end of June 2019.(Read More: Anadarko Raises Buyback & Debt Reduction Target by $1.5B.)

Headquartered in Houston, TX, Occidental Petroleum Corporation (OXY - Free Report) is also an oil and gas explorer with operations across Middle East, Latin America and the United Sates.

The company, with Zacks Rank of 2, recently got an approval from the board of directors to raise its quarterly cash dividend payment to 78 cents per share from 77 cents. The annualized dividend of $3.12 is up from the prior rate of $3.08. (Read More: Occidental's Board Approves 1.3% Hike in Dividend)

Devon Energy Corp. (DVN - Free Report) , headquartered in Oklahoma City, OK, is involved in exploration and production of oil and natural gas.

The company, with Zacks Rank of 2, has boosted its stock buyback program by $3 billion. (Read More: Devon to Monetize Midstream Assets, Buyback More Shares)

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