Looking for ways to play $100-plus per barrel oil? The energy sector has many dividend paying stocks, in fact, many of them are listed in the energy section of our High Dividend Stocks by Sector Tables. Although most of the major integrated oil stocks don't have such high dividend yields, there are some that can still give you double-digit high options yields, via selling covered call options and cash secured puts. We found three oil dividend stocks with attractive management. metrics, good margins and good growth prospects for 2011:
They are ConocoPhillips, (COP), PetroChina, (PTR) and, the big kahuna, Exxon Mobil (XOM). Here's how these three firms compare vs. their peers in the oil majors group:
Click to enlarge
ConocoPhillips has the lowest margins of this group, due to its heavier exposure to refining, a lower margin part of the oil biz. However, Conoco has been divesting poor-performing assets, and is moving to concentrate more on exploration and production, which should improve margins. Two other factors favor COP's future earnings: 1. COP has a higher proportion of natural gas than its peers and should benefit from environmental concerns that favor natural gas. 2. COP also has significant ownership in pipeline and other transportation assets, which offer steady income that is not as tied to variations in commodity prices. (Source: Morningstar)
PetroChina, China's largest oil and gas company, looks to secure future domestic and international supply to feed a nation hungry for energy. Refining operations lost money over the past few years as the price of crude oil soared while the price for refined products in China remained stagnant due to government controls. Now, the Chinese government will revise product prices if oil prices fluctuate over a given period of time. The new system should improve refining margins. (Source: Morningstar)
ExxonMobil sets itself apart among the other supermajors as a superior capital allocator and operator. Resource nationalism is becoming an increasingly greater challenge to international oil companies' (IOC) ability to grow production. Countries rich in oil and gas reserves are increasingly picky when choosing partners, such as Exxon, to work with their national oil companies (NOC) to explore for, produce and transport to market their oil and gas reserves. With its deep pockets, expertise and integrated operations, Exxon can tackle nearly any mega-project regardless of scale, location or operational difficulty. (Source: Morningstar) In addition, Exxon's purchase of XTO positions itself as a major player in the growing utilization of natural gas, which Exxon predicts will overtake coal as the second most utilized fuel source in the coming years.
Looking ahead to 2011 earnings, Conoco and PetroChina appear undervalued:
Click to enlarge
While XOM's 2011 PEG is over 1, it generally commands a premium to its peers in the market, hence the higher P/E and PEGs.
Here's how you could lock in high option yields now, by selling Covered Call options:
Click to enlarge
Note how the above call options are approximately three times the price of the dividends. Another positive to the Covered Call and Cash Secured Put options strategies is that you receive the option premium $ within three days of selling calls and puts, as opposed to waiting for each quarterly dividend. The flip side is that your participation in possible future price gains is limited to your potential assigned yield - (the difference between the strike price and the stock's cost basis). Our Covered Calls Table can give you more info about these and other Covered Call options trades.
Conversely, if the current high market prices make you nervous, you could also earn high options yields by selling Cash Secured Puts for any of these stocks, thereby receiving much more $ from the put options than the current dividend yield will earn you. You'd also have a lower break-even price:
Click to enlarge
There's more info about these and other put options trades in our Cash Secured Puts Table. (Note: Put option sellers don't receive dividends, we listed the dividends for comparison only.)
Disclosure: Author is long XOM shares, and may be short COP puts in the near future.
Disclaimer: This article is written for informational purposes only.
No comments:
Post a Comment