As Sunni militants continue their offensive in western Iraq, the price of oil is surging, and the markets read the unstable situation as further evidence that Iraq will be unable to sustain its oil production levels of around 3.3 million barrels per day.
The current flare-up in the Middle East has had the predictable knock-on effect on the shares of the major E&P companies, whose market values have all risen precipitously since Al Qaeda-breakaway group Islamic State of Iraq and Syria (ISIS) began swallowing up chunks of northern Iraq earlier this month. While the country only accounts for around 3.5 percent of global supply, the crisis comes amid earlier and ongoing conflicts in Syria and Libya, which have already disrupted nearly 2 million barrels a day of production. Should Iraq’s 3 mb/d be taken out of the equation, a price run beyond the current $105-$108 per barrel WTI range is a virtual guarantee.
With oil and other risk-on commodities such as gold and silver back in favor, investors would be advised to consider wading into oil stocks, particularly since E&P companies are some of the largest in the world and offer investors a relatively healthy, if not risk-free, dividend, even if growth targets fail to satisfy.
As the world’s attention stays focused on Iraq, here are five dividend-paying oil companies to keep an eye on in the weeks and months ahead. Factored into my choices below are a company’s current and past dividend payouts, its ability to sustain its dividend or increase it, and the company’s future profitability.
1. BP (NYSE:BP)
At 4.29 percent, BP is a standout amongst its peers for income growth, compared to Chevron’s 3.22 percent yield and Exxon Mobil’s 2.64 percent. The integrated oil and gas producer hiked its dividend by 2.6 percent in May, following the disposition of four of its North Slope Alaska oil fields. The $1.5 billion asset sale was part of a larger strategy by BP to unload $10 billion worth of non-core assets over the next two years, in an effort to underwrite dividend increases and share repurchases. The company has so far paid out about $42 billion in charges related to the 2010 Deepwater Horizon disaster. However, BP has maintained a strong cash position, with first-quarter cash flows of around $8.2 billion, allowing it to easily cover dividend payments of $1.4 billion, according to hedge fund analyst Winning Strategies.