Summary

Explaining why the run-up in Oil and Gas stocks is likely just the beginning of a bigger run.

Discussing the struggles many traditional dividend aristocrats will likely continue to have in this inflationary environment.

Discussing why the oil and gas sector should continue to offer solid growth and dividends for at least the next 4 years.

imaginima/E+ via Getty Images It’s always interesting to hear how simple many people want to make investing sound. Buy low, sell high, and buy good companies with strong profits and impressive cash flow. Unfortunately, investing in the real world is never that simple. Very rarely can investors pick the bottom or time the top, and finding solid companies with good management teams and growing revenue isn’t easy.

Despite the big run up in oil and gas stocks this sector is likely to offer income and dividend based investors the safest and most solid income for years to come.

First, it’s important to put the recent run in perspective. Well there has been a big run in many leading oil and gas companies over the past year, many of these stocks are well off their highs from just 3 years ago in 2018, and there have been far bigger rallies in this sector.

Many of the leading companies in this sector still look cheap and offer strong dividends at current prices.

Chevron ( CVX ) currently offers a 4.7% dividend and even though this stock is up nearly 20% since September, the stock is still more than 20% off the company’s highs from just 6 years ago. Chevron trades at just 15x forward earnings estimates, and Exxon Mobil trades at 12.2x forward earnings estimates. Chevron trades at 1.8x sales and 1.64x book value.

BP ( BP ) offers a 4.41% dividend and even though this stock is up around 15% in the last 6 months, this stock is well of its highs from just 2 years ago. BP currently trades at just 11.5x trailing profit estimates, and the company’s forward price to earnings ratio based on consensus estimates is just 8.6x likely forward earnings. BP trades at .5x Sales and 1.2x book value.

Exxon Mobil ( XOM ) offers a 5.51% and is up over 20% in the last 6 months. Again though, this stock is also more than 20% of its highs from 2018. Exxon-Mobil trades at 1.2x Sales and just 1.7x book value. These are not premium or extended valuations at all if oil prices remain high or move higher.

Investing should always be about the future not the past, and while the past can be informative, simply looking at recent sell-offs or rallies aren’t the basis for a good long-term investment.

The bull case of oil and gas stocks is all about the bull case for oil right now, and that case remains strong.

First, the Biden administration is completely beholden to the left and has been unwilling to govern from the middle on issues ranging from immigration, energy, or spending, as we see from the latest new $3.5 trillion dollar so-called infrastructure bill. One of Biden’s first actions when he came into power was to cancel the Keystone pipeline, and Biden has done nothing but curtail new oil and gas investments. Trump’s policies were the opposite, and this is a big part of the reason why the US has gone from energy independent to importing oil once again. Climate change is a big issue for progressives and Biden will not be able to promote policies that encourage significant new oil and gas investments if he wants this large and important political group’s support.

Second, the Fed is going to continue to prop up markets by pumping money in and the Fed remains unlikely to significantly or quickly raise interest rates in the near term. Despite much evidence to the contrary, the view of the Fed and Treasury Secretary Yellen continues to be that inflation is transitory . That means the Fed clearly does not see inflation as a significant long-term or short-term threat right now, and there is no evidence that view is likely to change in the near term.

Third, even though part of the reason for the run-up in oil prices has been the likely short-term impact of the recent hurricanes in the Gulf of Mexico on oil and gas infrastructure, there are more powerful longer term factors that will likely continue to push up oil prices as well. Rising natural gas prices and coal shortages in Asia have also increased demand for traditional crude oil. As economies […]

source The Case For Dividend Investors Being Heavily Overweight The Energy Sector Is Strong

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