Despite all the volatility in crude prices, the oil industry can be a great place to find high-quality dividend stocks. Oil companies typically offer above-average dividend yields, and many have strong records of dividend growth.
Two top oil dividend stocks are ConocoPhillips (COP +2.77%) and EOG Resources (EOG +1.99%). They currently have attractive dividend yields (2.6% for ConocoPhillips and 2.9% for EOG Resources, both more than double the S&P 500‘s 1.2% yield). Here’s a look at which oil company is the better dividend stock to buy right now.
Image source: The Motley Fool.
Drilling down into these top oil dividend stocks
ConocoPhillips is a large, low-cost oil and gas producer. It currently needs oil to average in the mid-$40s to generate enough cash to fund its capital program, which includes four major long-term expansion projects. It can fully fund its dividend with $10 more. Last year, the company generated $7.3 billion of free cash flow with oil in the mid-$60s, easily covering its $4 billion dividend outlay. With crude prices currently much higher, it’s generating a mountain of excess free cash flow. That’s enabling ConocoPhillips to further fortify its top-tier balance sheet.
EOG Resources also has very low-cost operations. Last year, the U.S. oil and gas giant generated $4.7 billion in free cash flow after capital expenditures, easily covering the $2.2 billion in dividends it paid. The company only needs oil to average around $50 a barrel this year to cover its capital spending plan and dividend commitment. EOG Resources also has a pristine balance sheet with a leverage ratio well below its target.
Today’s Change
(2.77%) $3.52
Current Price
$130.71
Key Data Points
Market Cap
$155B
Day’s Range
$127.47 – $130.75
52wk Range
$79.88 – $130.75
Volume
43K
Avg Vol
9.5M
Gross Margin
24.63%
Dividend Yield
2.55%
A look at their growth profiles
ConocoPhillips is investing in a trio of liquefied natural gas (LNG) projects that should come online through 2028. These projects, along with cost-savings and margin-enhancement activities, should add $1 billion to its free cash flow each year during that period. Meanwhile, ConocoPhillips expects its Willow oil project in Alaska to add another $4 billion in annual free cash flow when it starts producing in 2029. Add it all up, and that’s $7 billion in free cash flow growth over the next four years, assuming oil averages $70 a barrel. This growing cash flow will lower the company’s breakeven level to the low-$30s by 2029. That robust growth supports ConocoPhillips’ plan to grow its dividend within the top 25% of S&P 500 companies.
Today’s Change
(1.99%) $2.78
Current Price
$142.46
Key Data Points
Market Cap
$75B
Day’s Range
$139.80 – $142.95
52wk Range
$101.59 – $142.95
Volume
340K
Avg Vol
5.2M
Gross Margin
40.75%
Dividend Yield
2.86%
EOG Resources expects to grow its oil and gas production at a mid-single-digit annual rate over the next three years. That positions it to generate $18 billion of cumulative free cash flow during that period at an average oil price of around $73 a barrel. That’s up from $15 billion over the last three years at that same average oil price, or a more than 6% compound annual growth rate. That should give EOG Resources plenty of fuel to continue growing its dividend.
High-octane dividend growth expected
ConocoPhillips and EOG Resources are both excellent oil dividend stocks. They have low breakeven levels and strong growth prospects. However, ConocoPhillips expects to grow much faster. It can more than double its free cash flow by 2029, compared to EOG Resources’ mid-single-digit growth rate, both assuming oil is in the low-$70s. That should enable ConocoPhillips to grow its dividend faster in the coming years, making it a better dividend stock to buy.