If you are an investor focusing on the long term, then stable, dividend-paying companies should interest you. Naturally, these businesses must be solid and must continue to grow and create shareholder value for a long time to come.
Why they are the best
As the world's thirst for energy has kept growing, some of the bigger and mature oil and gas companies have done exceptionally well. Consequently, these companies paid out dividends that gradually grew as cash flows increased. Looking into the future, oil and natural gas will continue to be the primary sources of energy. In its Outlook for Energy: A View to 2040, ExxonMobil predicts that oil and gas will continue to be the most widely used fuels in the next three decades, with natural gas consumption overtaking that of coal and ranking just behind oil.
While trying to identify stable dividend payers in the exploration and production space, I found that it wasn't too difficult to spot them. Historically, the best dividend payers were the bigger and more established companies with significant exposure to diverse resources across the globe. These companies could take advantage of gradually increasing (though volatile) crude oil prices and time their production rates accordingly. The net result: These companies guaranteed excellent cash flows, a part of which they paid out as dividends.
Below are four companies in the E&P space that I believe will continue to be solid dividend payers in future.
Royal Dutch Shell
In 2011, total shareholder return, including dividends reinvested, stood at an impressive 21.3% while the S&P 500 fell 1% and the Dow Jones Industrial Average returned 5.5%. A dividend yield of 4.7% isn't easy to ignore either.
- Add Royal Dutch Shell to your watchlist.
Total shareholder return in 2011 with dividends reinvested stood at 16.1% -- again, an impressive return for a 12-month period. With a dividend yield of 4%, this stock looks promising.
- Add Statoil to your watchlist.
Petrobras has a history of paying special dividends several times a year. A dividend yield at 3.4% isn't bad at all. I believe its stock looks attractively priced compared to its peers, and the upside looks promising.
- Add Petrobras to your watchlist.
In short, Conoco has the potential to sustain dividend payments. Total shareholder returns for 2011 (with dividends reinvested) were 10.7%, while current dividend yield is 3.4%. A great stock for years to come.
- Add ConocoPhillips to your watchlist.
Foolish bottom line
While these stocks are among the best dividend payers in the E&P sector, your search shouldn't end here. Moreover, it must be kept in mind that dividend payers definitely counteract risk as compared to non-dividend stocks. If you're looking for more ideas, The Motley Fool has created a new special oil report titled "3 Stocks for $100 Oil," which you can download today, absolutely free. Just click here to access it now.
Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Petroleo Brasileiro and Statoil A. The Motley Fool has a disclosure policy.