Monday, August 10, 2015

Are these oil dividends safe?

The price of oil has declined a lot since the summer of 2014. The West Texas Intermediate (WTI) in Cushing, Oklahoma has declined from a high of $107.52/barrel in June 2014 to a low of $45.25/barrel in August 2015. This severe decline in prices has reduced the earnings power of many energy dividend growth stocks, which are engaged in exploration and production.

The question on everyone’s mind is whether these dividends are safe. Only after we answer this question, can we determine whether it makes sense to purchase those shares for income in a dividend growth portfolio.

Back in late 2014, I discussed whether the oil price decline was the opportunity of a lifetime. I talked about three companies I had my eye on. Initially, I discussed how I wanted to slowly build my positions every month. I even made a purchase of ConocoPhillips in early 2015, followed by a small purchase of Exxon Mobil (XOM) a few later. As I was buying Exxon Mobil, I had a change of heart after realizing that the oil price shock had drastically reduced energy companies’ earnings a few weeks later. Therefore, the drop in share prices was much lower than the decline in earnings power, which made those shares overvalued. As a result, I changed course and only recently bought shares in Exxon Mobil.

Continue Reading on Seeking Alpha 


Full Disclosure: Long XOM, CVX, COP, KMI, WMB, OKE,

Relevant Articles:

The Energy Company I want to buy
Are Energy Stock Values Today a Once in a Lifetime Opportunity?
Are Energy Investments Today a Once in a Lifetime Opportunity (Part 2)
How to value dividend stocks
Reinvest Dividends Selectively

Popular Posts