Oil prices have consistently been in the range of $45-$55 per barrel for the past one year. In November, the commodity’s price crossed $58. The crude price chart of oilprice.com shows that on Dec 8, West Texas Intermediate (WTI) oil traded at $58.35 per barrel, close to $59.05 — the highest since mid-2015. A number of factors have propelled this positivity. These include the OPEC-led production cut extension, lower inventory overhang and rising demand.
In spite of these aspects, it’s difficult for oil prices to reach 2014 levels. To avoid the repercussion of price slump it is necessary to use tools that give a steady flow of income, growth and value. Therefore, dividend stocks can respite from extreme downsides.
Importance of Dividend Stocks
The popularity of dividend stocks among investors is not unjustified. These stocks not only provide higher income in the current low-rate environment but also offer cushion against equity market risks.
Historically, dividend stocks are less volatile than non-dividend stocks. They are also considered to be outperformers over the long term. These stocks provide opportunities to create wealth as dividends generally act as a hedge against economic uncertainty. These stocks provide downside protection by offering considerable yields on a regular basis.
Another factor to consider while picking dividend stocks is to decide whether to choose low-yield, consistent dividend paying stocks or high-yield stocks that canrake infast cash but are not reliable. It is up to the individual investor to determine a stock according to their needs, but it is always safe to select a steady performer with strong fundamentals. Investors must also diversify their portfolio to reduce risk.
Dividend yield is calculated as (dividends per share [annualized]/market price per share) x 100. This is very helpful in comparing stocks belonging to the same sector or industry. The stock with higher dividend yield is likely to produce better returns.
Adding Value to Dividend Stocks
Many investors seek value in stocks, which is tough to define. There is a great debate regarding which metrics are the best to focus on and which are negative indicators of future performance. Fortunately, with our new style score system we have identified the key statistics to pay close attention to this and thus estimate which stocks might be the best for value investors in the near term.
Picking the Right Way
Selecting a dividend stock can be a tough choice. Investors must consider the company’s past performance and prospects. A stock that has paid lofty dividends in the past but may see troubled times ahead is obviously not a favorable pick.
The choices can be narrowed to a favorable Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) and promising value metrics (Value Score = A or B). The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that, stocks with Style Scores of A or B when combined with a Zacks Rank #1 or #2, offer the best upside potential.
A good industry rank adds to the value of the stock. The stocks selected will have a dividend yield greater than 3%.
Based upon the above criteria, we have selected four stocks that look promising. Not only do these stocks have a favorable Zacks Rank but also a value score of A.
ExxonMobil Corp. (XOM - Free Report) , based in Texas, is the world’s largest publicly traded oil company. ExxonMobil is engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture and other energy-related businesses.
This Zacks Rank #2 stock offers a promising dividend yield of 3.73% and has consistently paid shareholders over the past several years. The company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, with average positive surprise of 1.08%.
BP plc (BP - Free Report) , based in London, is among the leading integrated energy players in the world.
This Zacks Rank #1 stock offers a robust dividend yield of 6.00%. The company has continued paying dividend over the past several years amid the ongoing oil price volatility and has also performed well on the earnings front. The stock has gained about 6% year to date.
CNOOC Ltd. (CEO - Free Report) primarily engages in the exploration, development and production of crude oil and natural gas offshore China. It is the only company allowed to perform exploration and production activities with international oil and gas companies offshore China.
With a market capitalization of $59.96 billion, the company offers a promising dividend yield of about 3.63%. The company has consistently paid dividend in the past several years in spite of the slump in energy sector. Moreover, the Zacks Rank #1 stock has gained nearly 9.3% YTD.
China Petroleum & Chemical Corp. (SNP - Free Report) , or Sinopec, headquartered in Beijing, China, is one of the largest petroleum and petrochemical companies in Asia. The company is the second-largest crude oil and natural gas producer, and the largest refiner and marketer of refined petroleum products in China.
This Zacks Rank #1 stock offers a promising dividend yield of 5.01% and has been paying the quarterly dividend for the past years amid the volatility. The company has also performed well on the earnings front beating the Zacks Consensus Estimate in the trailing two quarters with average positive surprise of 746.1%.
Investors’ preference and investment strategies vary. Investment in the above-mentioned stocks willresult in steady income. Moreover, stable earnings growth is likely to result into capital appreciation.
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