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The Best Dividend Stocks for 2012 – Energy Sector

S&P recommends marketweighting the S&P 500 Energy sector. Year to date through November 18, the S&P Energy Index, which represented 12.4% of the S&P 500 Index, was down 0.1%, compared to a 3.3% decline for the S&P 500. In 2010, this sector index advanced 17.9%, versus a 12.8% increase for the 500. There are seven sub-industry indices in this sector, with Integrated Oil & Gas by far the largest at 56.7% of the sector’s market value.

S&P equity analysts have a positive fundamental outlook on the influential Integrated Oil & Gas sub-industry, as well as most of the sector’s other smaller sub-industry groups due to strong emerging market energy demand and tight global capacity. However, we believe that while oil prices will remain historically elevated, averaging $92.35/bbl. in 2011 and $95.53/bbl. in 2012, energy price appreciation will slow relative to 2010’s big advance owing to uncertain U.S. and European growth prospects. According to Capital IQ, the sector’s recent valuation of 9.8X consensus estimated 2012 EPS is below the 500’s P/E of 11.3X, as oil price volatility keeps investors from assigning the sector too high a valuation, in our view. The sector’s P/E-to-projected-five-year EPS growth rate (PEG) ratio of 0.8X is below the broader market’s 1.0X. This sector’s marketweighted S&P STARS average of 4.3 (out of 5.0) is above the S&P 500’s average of 3.8.

The S&P GICS Energy Index has broken out from a bullish, inverse head-and-shoulders pattern. This suggests to us that the intermediate-term trend has turned bullish. However, prices have stalled up at the next area of formidable overhead supply in the 530 to 560 region. Prices have rallied back above their 17-week and 43-week exponential moving averages, a bullish sign, in our view. The 17-week has been rising since mid-October and is very close to retaking the 43-week exponential. A bullish crossover would be more confirmation that the longer-term trend is bullish. Relative strength vs. the 500 remains in a downtrend off the early April top; however, the RS line has rebounded nicely since the end of September, and is not far from breaking its downtrend. We have raised our technical opinion on the Energy sector to neutral with a bullish bias, from neutral with a bearish bias.

In all, we recommend marketweighting the Energy sector based on our view that more subdued oil price appreciation offsets low valuations.

Some of the notable energy companies making the list are well known such as COP and CVX.  However, other energy companies offer high yield dividends such as LUKOY (7.4%), PSE (7.8%), REPYY (7.8%), YPF (10%) and ERF (8.9%).

OAO Lukoil (LUKOY), together with its subsidiaries, engages in the exploration, production, refining, marketing, and distribution of oil and gas in Russia and internationally.  EPS increased from $10.93 to an estimated $13.71 over the past 5 quarters indicating an improving growth rate. Analyst forecasts have recently been raised.  Lukoil Oil Company’s stock price is down 11.1% in the last 12 months, down 10.7% in the past quarter and down 10.3% in the past month This historical performance should lead to above average price performance in the next year.

The passing of 2010 marked a series of changes for Enerplus (ERF), as it converted from an income trust to a corporation. The company sold off conventional and oil sands assets, using the proceeds to build its acreage position in Pennsylvania’s Marcellus Shale and the Bakken in North Dakota and Saskatchewan.  We think the company will continue to pay an attractive dividend and aggressively pursue production growth in the Marcellus and Bakken.  ERFs development efforts in the Marcellus Shale should lead to strong production growth through 2015.

Here is a list of dividend payers in the energy sector ranked as very bullish or bullish by equity summary score worth a look for 2012.

Best Dividend Stocks for 2012 - Energy Sector

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Dividends from High Quality, High Yield Stocks

With so many companies being affected by the financial crisis, it’s important for income investors to find dependable dividend payers that they can count on. With projections for a slower growth economy amid historically low interest rates, it’s now more important than ever to find these solid dividend paying companies as there are fewer places to turn to for high yielding investments without taking on unwelcomed risk.  By screening for stocks with market beating yields, double digit growth rates, above median increasing cash flows and a strong balance sheet, this screen seeks to do just that by finding those companies that could turn into long-term core holdings for an income producing portfolio.

If you have not heard of TWO, then take note as this is a 9 on a 10 point scale.  Two Harbors Investment (TWO) is a holding company. The company operates as a real estate investment trust focused on investing in, financing and managing residential mortgage-backed securities (RMBS), and related investments. The company is externally managed and advised by PRCM Advisers LLC. The company’s target assets include the following: Agency RMBS, Non-Agency RMBS, and Financial assets other than RMBS, which include asset-backed securities and certain hedging transactions.

TWO is trading at $9.23 with a high dividend yield of 17%.  Yes, yields this high are scary but TWO is similar to Annaly as a mortage REIT.  EPS increased from $1.09 to an estimated $1.43 over the past 5 quarters indicating an improving growth rate. Analyst forecasts have recently been raised.  Company recently reported better than expected results.

Screening Criteria:
Dividend Yield Greater than or Equal to 5.00%; EPS Growth (Proj this Yr vs. Last Yr) – Greater than or Equal to 10.00%; P/E (This Year’s Estimate)Less than or Equal to 20.0; Cash Flow Growth Rate (TTM vs. Prior TTM) Greater than or Equal to 0.06%; Interest Coverage (Most Recent Qtr) Greater than or Equal to 3.0x; Security Price Greater than or Equal to $5.00.

 

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