Thanks to the strong recovery of global oil consumption from the pandemic, energy stocks are the top-performing market sector of the S&P 500 this year. Many oil stocks are recovering, thanks to rising oil prices. As a result, the top global oil majors are returning more cash to shareholders through dividends and share repurchases.
These three top international oil stocks have higher dividend yields than their U.S. peers.
London Calling
BP plc (BP) is one of the largest oil and gas corporations in the world based on its $108 billion market cap. It is a fully integrated company and operates in two segments: upstream and downstream (mostly refining).
The prices of oil and gas incurred a correction off their high levels in the previous quarter but BP has achieved exceptional trading profits and improved its refinery utilization. As a result, the company grew its first-quarter 2023 earnings per share 4% sequentially, from $1.59 to $1.66, and beat the analysts' consensus by $0.24. BP has beaten the analysts' consensus in eight of the last nine quarters. It is also the only oil major that grew its earnings sequentially amid lower oil and gas prices.
Moreover, BP reduced its debt for a 12th consecutive quarter. The oil major also reiterated that it can fund $4 billion of annual share repurchases and keep raising the dividend by 4% per year at a Brent price of at least $60. BP has also greatly improved its portfolio in recent years via the addition of low-cost reserves. BP announced that it would boost its investment in renewable energy sources 10-fold to fuel future growth.
The dividend is clearly a top priority for BP's management team, but the 50% cut in 2020 was warranted due to the debt load of the company. We view the current 4.4%-yielding dividend as safe, particularly given the drastic reduction of the debt of BP in recent quarters.
A Major Transformation Plan
Shell plc (SHEL) is an oil and gas supermajor, the third largest behind Saudi Aramco and Exxon Mobil (XOM) in terms of production volumes. Shell has benefited greatly from high commodity prices. Thanks to 13-year high prices of oil and gas, earnings per share in 2022 were more than double those in 2013. In the 2023 first quarter, its production edged up 1% sequentially. Nevertheless, thanks to improved margins in chemicals and high trading profits, adjusted earnings slipped only 2% sequentially, from $9.81 billion to $9.65 billion.
Thanks to favorable prices of oil and gas, Shell has raised its dividend by 15% this year.
Shell has announced a major transformation plan, which involves a transition from oil and gas to renewable energy sources. The company will transform its refining portfolio from 14 sites to six energy and chemicals parks and will reduce its upstream portfolio to nine core positions, which will generate more than 80% of the cash flows of the upstream segment. It also expects to produce ~75% of its proved reserves until 2030. This could provide long-term growth for the company.
In addition, Shell has drastically reduced its operating expenses in recent years and has invested in high-quality, low-cost reserves, which have rendered Shell more profitable at a given oil price. It is thriving now thanks to above-average oil and gas prices, which have resulted from the war in Ukraine. It is also more cheaply valued than its American peers, Exxon and Chevron (CVX) .
One of Europe's Highest-Quality Companies
Equinor ASA (EQNR) , previously named Statoil, is one of the largest European publicly traded oil companies, with a market capitalization of around $92.2 billion. The company is renowned for building up Norway's wealth, with the country having ownership of ~67% of the company. The ownership interest is managed by the Norwegian Ministry of Petroleum and Energy. While it is primarily a petroleum and gas company operating in 36 countries, Equinor has started diversifying its investments towards renewable energy.
In the 2023 first quarter, total revenues for the quarter were $29.2 billion, 20% lower than in Q1 2022. The decline in revenues reflects lower realized liquids and gas prices following commodity prices in the energy sector easing compared to last year, offset by 1% higher production volumes. For the quarter, the company reported a net income of $4.97 billion, compared to a net income of $4.7 billion a year ago, reflecting improving margins. On a per-share basis, net income came in at $1.59 compared to $1.45 in Q1 2022.
EPS growth is also boosted by strong share-repurchase activity. The company repurchased $6 billion worth of stock last year and expects to repurchase another $6 billion within fiscal 2023. Organic CAPEX guidance remains at around USD $10 to $11 billion for 2023 and $13 billion for 2024 to 2026. For FY2023, Equinor also expects production growth of about 3% compared to last year.
Following a year of excellent results, Equinor maintained its base dividend to a quarterly rate of $0.30 and declared a special dividend of $0.60 with respect to Q1 2023.
Equinor has been one of Europe's highest-quality companies. Its quality of assets is highlighted by suffering significantly fewer losses in its share price than the other oil majors during the pandemic. Following the company's divesture from Russia amid the ongoing invasion of Ukraine as well as the ongoing sanctions against Russian energy, Equinor's market share is set to increase.
Combined with the fact that Equinor has one of the most robust asset portfolios in the energy sector, resulting in lower production costs than its competitors, its investment case appears rock-solid.
The stock has a 4% dividend yield.
