This great post on the best oil stocks is originally published by Sure Dividend and we have been given permission to republish it here. As a head-up, we’re not recommending any direct recommendation for the firms shown here, you should do further research before opening an account.
Oil prices are on the rise, for a number of reasons. Inflation has spiked, while the U.S. economy continues to recover at an aggressive pace from the coronavirus pandemic.
As a result, oil prices are up across the board. West Texas Intermediate (WTI) crude is near $80 per barrel, up from the mid-$40 range at this point last year. Brent crude has had a similar increase, and now trades at $82 per barrel.
Naturally, investors might be wondering if now is the time to buy oil stocks.
With this in mind, we created a downloadable spreadsheet of oil stocks.
You can download our full Excel spreadsheet of oil stocks (with important metrics such as P/E ratio, payout ratio, and dividend yield) by clicking the link below:
The top 10 list below was derived from our rankings in the Sure Analysis Research Database.
To come up with the top 10, we ranked oil stocks according to expected total returns over the next five years.
We further narrowed the list by excluding Master Limited Partnerships, which have unique risk factors and tax issues.
We focused on stocks that are particularly leveraged to the price of oil, meaning they stand to benefit from rising oil prices.
Finally, they were evaluated based on balance sheet strength and dividend sustainability.
With all this in mind, we have created the following list of top 10 oil stocks for high dividend yields and expected returns.
Top Oil Stock #10: Imperial Oil Ltd. (IMO)
Imperial Oil is one of Canada’s largest integrated oil businesses. The company operates through three reporting segments: Upstream, Downstream, and Chemical. Imperial Oil is headquartered in Calgary, Alberta, Canada.
The company should benefit from a sustained rally in oil prices.
Source: Investor Presentation
Exxon Mobil (XOM) owns approximately 70% of Imperial Oil’s common equity.
Top Oil Stock #9: Kinder Morgan (KMI)
- Expected Annual Returns: 8.6%
Kinder Morgan, Inc., in its current form, conducted its initial public offering on 2/10/11. Today, the company is among the largest energy companies in the U.S. It is engaged in storage and transportation of oil and gas, and other products.
It owns an interest in or operates approximately 83,000 miles of pipelines and 144 terminals. Its pipelines transport natural gas, refined petroleum products, crude oil, carbon dioxide (CO2) and more.
Source: Investor Presentation
Kinder Morgan’s transportation assets operate like a toll road, whereby the company receives a fee for its services, which generally avoids commodity price risk.
Approximately 90% of Kinder Morgan’s cash flow is fee–based.
Top Oil Stock #8: Royal Dutch Shell (RDS.B)
- Expected Annual Returns: 9.9%
Royal Dutch Shell is an oil and gas supermajor, the second largest behind Exxon Mobil in terms of annual production volumes.
Shell is headquartered in London (UK) as well as in Den Haag (Netherlands). There are two types of shares of the company; RDS.A shares, listed in the Netherlands, and RDS.B shares, listed in the United Kingdom.
Top Oil Stock #7: BP plc (BP)
- Expected Annual Returns: 10.4%
BP is one of the largest oil and gas corporations in the world. It is a fully integrated company and operates in two segments: upstream and downstream (mostly refining).
In early November, BP reported (11/2/21) financial results for the third quarter of fiscal 2021. BP greatly benefited from the rally of the prices of oil and gas to multi–year highs and improved refining margins thanks to the recovery of the energy market from the pandemic.
As a result, BP grew its earnings–per–share from $0.83 in the second quarter to $0.99.
Top Oil Stock #6: Tenaris S.A. (TS)
- Expected Annual Returns: 10.8%
Tenaris SA is a global manufacturer of steel pipes and related services that is headquartered in Luxembourg and is a majority–owned subsidiary of the Techint Group.
Tenaris has significant exposure to oil prices as the majority of its customers operate in the energy sector.
Top Oil Stock #5: Equinor ASA (EQNR)
- Expected Annual Returns: 11.1%
Equinor ASA, previously named Statoil, is one of the largest European publicly traded oil companies. The company is renowned for building up Norway’s wealth, with the country having ownership of ~67% of the company.
On October 27th, 2021, Equinor reported its Q3–2021 results for the period ended September 30th, 2021. For the quarter, the company reported a net income of $1.4 billion, compared to a loss of $2.1 billion a year ago.
Equinor took advantage of the higher commodity prices and ongoing recovery from the pandemic to deliver a solid operational performance and strong results.
Total revenues for the quarter were $24.1 billion, 121.2% higher than the same period’s $10.9 billion during last year, reflecting the rebounding demand for energy.
Top Oil Stock #4: Enbridge Inc. (ENB)
- Expected Annual Returns: 11.2%
Enbridge is an oil & gas company that operates the following segments: Liquids Pipelines, Gas Distributions, Energy Services, Gas Transmission & Midstream, and Green Power & Transmission.
Enbridge bought Spectra Energy for $28 billion in 2016 and has become one of the largest midstream companies in North America.
Enbridge was founded in 1949 and is headquartered in Calgary, Canada.
Top Oil Stock #3: Phillips 66 (PSX)
- Expected Annual Returns: 12.3%
Phillips 66 was spun off from ConocoPhillips in 2012. Phillips 66 operates in four segments: refining, midstream, chemicals, and marketing.
In late October, Phillips 66 reported (10/29/21) financial results for the third quarter of fiscal 2021. The company recovered impressively from the pandemic.
Refining margins more than doubled sequentially thanks to improved demand for oil products and thus the refining segment switched from adjusted pre–tax losses of –$706 million to an adjusted profit of $184 million.
Top Oil Stock #2: TotalEnergies SE (TTE)
- Expected Annual Returns: 12.4%
On June 12th, 2021, Total SA (TOT) changed its name to TotalEnergies SE (TTE) to emphasize its efforts to transform in the changing energy landscape.
TotalEnergies is the fourth–largest oil and gas company in the world based on market cap. TotalEnergies operates in four segments: upstream, downstream (mostly refining), marketing & services and gas, renewables & power.
In late October, TotalEnergies reported (10/28/21) financial results for the third quarter of fiscal 2021. The company grew its production 2% sequentially thanks to slightly higher OPEC quotas.
In addition, oil prices grew 7% sequentially and gas prices in Asia and Europe nearly doubled thanks to the recovery from the pandemic amid low inventories.
Top Oil Stock #1: EOG Resources (EOG)
- Expected Annual Returns: 13.8%
EOG Resources is a crude oil and natural gas company. EOG Resources is principally engaged in the exploration, development, and production of crude oil and natural gas with reserves in the United States, Canada, Trinidad, and China.
EOG has lowered its breakeven point in recent years, while leaving plenty of upside exposure to rising oil prices.
Source: Investor Presentation
EOG has three operating segments split by geographical areas: Crude oil, Natural Gas and Natural Gas Liquids (NGL). Crude oil is the largest segment which accounts for 79% of revenue.
Final Thoughts on Best Oil Stocks
Oil prices have jumped this year, as the global economy emerges from the coronavirus pandemic and demand for oil returns to normal levels.
If oil prices continue to rise, these 10 oil stocks stand to benefit, while also paying attractive dividends to shareholders.
With reasonable valuations and growth potential in addition to their strong dividend yields, these 10 oil stocks have high expected total returns over the next five years.
As a result, these 10 oil stocks are attractive for investors expecting the recent oil price rally to continue.
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Disclosure: The author is not a licensed or registered investment adviser or broker/dealer. They are not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.
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Tim Thomas has no positions in the stocks, bonds, ETFs, cryptocurrencies, or commodities mentioned.
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