The energy sector has gone through huge volatility lately, with oil prices plunging and bouncing dramatically over the past year. Investors see huge opportunity in energy right now, but there's also a lot of risk, and many investors don't want to have to keep tabs on a company every single day to make sure it doesn't fall prey to the next downturn in the oil patch.
To come up with some ideas of energy stocks offering greater stability and security, we turned to three Motley Fool energy analysts to get their views. Take a look at the three stocks they chose and see which of them fits best with your portfolio needs.
Bob Ciura: Chevron (NYSE:CVX) is an energy stock you don't have to babysit. That's because Chevron is one of the largest companies in the world, with a diverse business model that gives it a key advantage. Since Chevron is an integrated major, it has a large downstream refining business, which tends to do well when oil prices decline. This provides valuable balance that upstream pure-play companies don't have.
As a result, Chevron is holding up relatively well, all things considered. Even though the price of crude oil is down by approximately half over the past year, Chevron's total profits fell only 10% last year. Not surprisingly, this was due mostly to Chevron's oil and gas exploration and production business, where profits declined by 18% in 2014. However, thanks to stronger refining spreads, downstream profits nearly doubled, to $4.3 billion, for the year.
Even better, Chevron is likely to raise its dividend this year, which is impressive considering the oil crash. To do this, Chevron plans to reduce its capital spending this year by 13%, to $35 billion. In addition, Chevron announced it plans to sell $15 billion worth of assets through 2017, after divesting $6 billion last year. Lastly, Chevron will suspend its share buyback program this year. Chevron had previously been buying back its own stock at a rate of about $1.25 billion per quarter.
Combined, these measures will allow Chevron to raise its dividend yet again this year, and the stock already yields a juicy 4%. Because of all of these qualities, Chevron is a rock-solid company you don't have to babysit.
Jason Hall: Phillips 66 (NYSE:PSX) is one of the largest oil refiners in the world, and the strength of its refining business alone is enough to make it a solid long-term income investment, especially when tied to its world-class marketing business that sells those refined products. But there's so much more to like about this company for long-term and stable returns.
The company's petrochemicals business -- a 50/50 joint-venture with Chevron called CPChem -- generated $1.2 billion in adjusted earnings in 2014, or 31% of total earnings. This number is likely to grow in coming years, with the partnership investing billions to expand capacity.
Its midstream segment consists of wholly owned assets, as well as those of master limited partnership Phillips 66 Partners LP (NYSE:PSXP); a joint venture with Spectra Energy called DCP Midstream is the smallest segment, but one likely to grow significantly over the next five years, while producing steady cash flow that pipelines are known for.
Here's the key for me: Growth in its midstream and chemicals business is being driven by serious long-term trends tied to America's natural gas and oil resources. Even if oil (and natural gas) remain dirt-cheap for years to come, Phillips 66 will benefit from strong demand, while not feeling the pinch producers do when commodity prices are low.
Dan Caplinger: The refinery industry has gotten a lot of attention lately because of its resistance to the pressures from lower crude oil pressures. In fact, like many U.S. refiners, HollyFrontier (NYSE:HFC) has actually benefited greatly from the falling price of oil, as the widening spreads between prices of domestic crude and oil on the global market have given it a big competitive advantage over foreign refiners.
HollyFrontier has particularly benefited from the renaissance of the U.S. oil industry because of the proximity of its refining operations to key areas of new production.
The company has refineries strategically located in the Permian Basin, Mississippi Lime, Uinta Basin, and Niobrara shale plays, and they also put HollyFrontier in position to process production from neighboring regions such as the Eagle Ford in Texas and the Bakken in North Dakota.
However, even if the drop in oil prices leads to reduced production in these areas, HollyFrontier should still be able to take advantage of locations near central industry hubs in Oklahoma to reap cheaper feedstock to process into gasoline, diesel fuel, and other key petroleum products. That, along with a regular dividend yield of 3% and special dividend boosts from time to time, makes HollyFrontier a good low-maintenance energy stock.