Although the political winds have long attempted to fade out oil stocks to buy, this sector is back with a vengeance, first due to its relevance and second because they tend to pay solid dividends. However, not all hydrocarbon companies are equal, with some paying out more yield than others. Here then are nine companies to consider for your portfolio.
The format for this list of oil stocks with the highest dividends is intuitive: three reliable companies, three toward the riskier end and the final three being among the riskiest. In turn, I’ll briefly go over what each brand specializes in and provide a quick rundown on possible reasons the yields are what they are. Basically, the higher the yield, the riskier the business.
In addition, I’ve taken the time to explore some of the oil stocks that you don’t always hear about. While I could have stuck Exxon Mobil (NYSE:XOM) or Chevron (NYSE:CVX) on this list, let’s be real: both InvestorPlace and its competitors have covered the popular companies ad nauseum.
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One of our northern neighbor’s largest independent crude oil and natural gas producers, Canadian Natural Resources (NYSE:CNQ) features a diverse portfolio, consisting of light crude oil, primary heavy crude oil, Pelican Lake medium crude oil and natural gas liquids. As of this writing, CNQ features a dividend yield of 4.4%, making it one of the best oil stocks for passive income.
What’s particularly attractive about Canadian Natural Resources is how balanced it is. On a year-to-date basis, CNQ is up over 24% (though it slipped 14% in the trailing five days). Fundamentally, the company enjoys solid strength in the balance sheet and a very decent profitability rank, with a highlight being net margin that exceeds 81% of competing oil stocks.
Based on a broad collection of valuation metrics, CNQ is fairly valued. While you might not quit your job with a 4.4% yield, CNQ probably won’t steer you wrong.
CVR Energy (CVI)
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Headquartered in Sugar Land, Texas, CVR Energy (NYSE:CVI) is a diversified holding company engaging in petroleum refining and marketing. Currently, CVR pays a dividend yield of 4.7%, which is higher than the average yield of 4.1% in the energy sector.
As you might imagine, the circumstances of the new normal – first the coronavirus pandemic and now Russia’s invasion of Ukraine – have been cynically good for business. In 2021, CVR posted revenue of $7.24 billion, up 84% from the prior year. On a trailing-12-month (TTM) basis, revenue is $8.15 billion.
Fundamentally, CVR is one of the attractively balanced oil stocks to buy, with decent strength in the balance sheet and robust profitability. For the latter category, the company features a return on equity (ROE) of 24.5%, ranking higher than 82% of oil and gas competitors. However, for the increase in yield over CNQ, CVI is considered significantly overvalued.
BP (BP)
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One of the biggest oil stocks in the world, BP (NYSE:BP) stands among the seven supermajors in the industry. It’s also one of the higher-paying companies in terms of passive income, featuring 4.4% dividend yield. In 2021, BP generated revenue of $157.7 billion, up 49% from the prior year. On a TTM basis, the oil firm is trending at $172.45 billion.
Interestingly, though, BP isn’t as strong of a performer in the capital market as other oil stocks, gaining only 4% so far in 2022. However, the company provides a sensible balance between solid fundamentals and passive income output. Specifically, BP’s return on invested capital (ROIC) is 10.35%, ranked better than 75% of companies listed in the oil and gas industry.
However, the one major knock on BP could be that its modestly overvalued. As well, the company doesn’t sport the greatest strength in the balance sheet, with its Altman Z-Score in particular being quite challenged.
Oil Stocks: Evolution Petroleum (EPM)
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Raising the risk-reward profile of oil stocks to buy a bit higher, we’ll kick things off with Evolution Petroleum (NYSEAMERICAN:EPM), a developer and producer of oil reserves. Presently, EPM features a dividend yield of 6.7%. Last year, the company generated $32.7 million in revenue, up over 10% from 2020’s tally. On a TTM basis, Evolution is looking at $80.6 million, a vast improvement from historical norms.
On paper, Evolution appears to be a hidden gem. The company features substantial strengths in the balance sheet along with excellent profitability metrics. In the former category, Evolution’s Altman Z-Score is well in the safe zone while in the latter category, it commands a net margin of nearly 25%, better than 81% of competing oil stocks.
If that wasn’t enough of a reason to consider EPM, a basket of valuation metrics considers the stock to be significantly undervalued. However, it is a small-capitalization firm ($218 million) so caution is warranted.
Eni (E)
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One of the Italy’s biggest and most well-known companies, Eni (NYSE:E) is structured as an integrated energy company. Like BP, Eni is also one of the seven supermajors among oil stocks. At time of writing, Eni pays out a 7.6% dividend yield. In 2021, the company posted top-line sales of $86.5 billion, nearly 62% higher than 2020’s tally.
Also, on a TTM basis, Eni’s revenue is trending at nearly $108 billion. So, what could go wrong with E stock? Turns out, the rest of the fundamental metric are solid as well. The company enjoys robust profitability, highlighted by an operating margin of 16.45%, better than two-thirds of rival oil stocks. Also, Eni is considered modestly undervalued across a range of valuation metrics.
If there is a weakness to point out, it would be in the company’s balance sheet. For instance, its equity-to-asset ratio of 0.3 has slipped significantly from its historical norms, when it featured a median reading of 0.4.
Devon Energy (DVN)
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Moving the radar back home, Oklahoma City, Oklahoma-based Devon Energy (NYSE:DVN) is an independent oil and natural gas exploration and production firm. As I write this, DVN has a dividend yield 8.7%. Last year, Devon rang up sales of $12.2 billion, a staggering 153% improvement over 2020’s tally of $4.8 billion. On a TTM basis, Devon is looking at just under $14 billion.
DVN is also one of the top market performers among oil stocks to buy, gaining nearly 32% YTD. However, on a trailing-week basis, DVN did drop 16.4%, thus drawing some concerns. Fundamentally, Devon is a bit of a mixed bag, featuring decent financial strengths and certain solid profitability metrics.
However, the main issue with Devon could be that it’s a well-known investment idea. With so many folks bidding up DVN shares, they’ve become significantly overvalued against a spectrum of valuation readers. Still, with how relevant the hydrocarbon industry has become, DVN is an intriguing idea for passive income.
Oil Stocks: NuStar Energy (NS)
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Now, we’re diving into the final third of oil stocks with the highest dividend yield with NuStar Energy (NYSE:NS), a master limited partnership (MLP) focused on the petroleum pipeline and terminal industries. Currently, NS pays a staggeringly high yield of 11.8%. Last year, the company posted revenue of $1.62 billion, up 9.2% from 2020’s tally.
Unlike other oil stocks, NuStar’s sales on a TTM basis isn’t as impressive at almost $1.7 billion. In addition, investors must pay attention to the company’s balance sheet, which isn’t the strongest in the field. For instance, its equity-asset ratio of 0.18 is worse than 82% of the competition. Another factor to consider is that as an MLP, its tax structure is more complicated than bread-and-butter stocks.
Interestingly, though, NuStar is considered modestly undervalued against a spectrum of valuation tools. If you have the time and patience for MLPs, NS might be something to put on your watch list.
MV Oil Trust (MVO)
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Structured as a royalty trust, MV Oil Trust (NYSE:MVO) is unlike many other oil firms in that it holds an interest in oil and natural gas properties; in this case, those located in the mid-continent regions of Kansas and Colorado. Currently, MV Oil Trust commands a dividend yield of 16.1%, naturally attracting those seeking extremely high yield.
But should you go for MVO stock? It’s a rather popular name among investors, gaining almost 17% YTD. However, because of the strong demand, MVO is significantly overvalued based on a collection of valuation metrics. What’s more, the administrative challenges associated with buying and holding MVO is problematic.
If you thought MLPs are complicated because of how they are taxed, it’s a similar story with royalty trusts. They are pass-through entities, meaning in short that they’re not appropriate for investors that hate paperwork. Nevertheless, that 16.5% yield is quite tempting.
China Petroleum (SNP)
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One of the world’s biggest oil stocks, China Petroleum (NYSE:SNP) is an oddity in the sector because its equity unit is down 8% on a YTD basis. Invariably, though, some investors are going to overlook this performance gap because it features a 17% forward yield. That’s going to get a lot of people thinking hard about SNP, especially because of global inflation.
But should you take the dive? On paper, SNP doesn’t seem like a bad idea. China Petroleum has decent strengths in the balance sheet while also providing solid and balanced profitability metrics. The company also features a price-earnings ratio of 7.8x, which is undervalued relative to 66% of other oil stocks.
Still, the one unknown is the China factor. Beijing has been struggling with its draconian response to Covid-19 outbreaks, while the U.S. has an extremely tense relationship with the Chinese government, with the Taiwan issue threatening to get out of hand. Therefore, only buy SNP if you can handle the geopolitical heat.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
