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What are we looking for?

Sustainable oil and gas dividends – with less risk

The screen

The Organization of the Petroleum Exporting Countries (OPEC) now expects global oil demand to rise 10 per cent by 2025 as part of an anticipated 23-per-cent jump in overall energy demand.

The projection may be too optimistic given the continuing push to cut fossil-fuel use through the adoption of renewable energy. OPEC’s forecast may also fail to quell investor fears that the oil industry will struggle to maintain high and sustainable dividends.

We think the best way to continue profiting from the oil industry – regardless of the pace of change and the impact on oil prices – is through integrated oil and gas stocks.

Those industry giants produce fossil fuels, but also refine them. That makes them a lot less sensitive to changes in prices than pure producers are. It also cuts the overall risk for investors.

Our search started with global integrated oil stocks. From there, we singled out those dividend payers with strong production and cash-flow forecasts, before applying our TSI Dividend Sustainability Rating System, which awards points based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow to cover dividends;
  • One point if the company is an industry leader.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Low-risk, sustainable oil and gas dividends

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Bil.)**1Y Ttl. Rtn. (%) Recent Price ($)**
1Suncor Energy Inc. SU-TAbove Average85.351.5-9.839.08
2BP PLC (ADR)BP-NAbove Average84.499.530.035.30
3Chevron Corp.CVX-NAbove Average83.9297.99.6156.31
4Shell PLC (ADR)SHEL-NAbove Average83.6212.123.259.86
5Exxon Mobil Corp.XOM-NAbove Average83.4434.526.1106.91
6Imperial Oil Inc.IMO-TAbove Average82.939.817.368.04

Source: Dividend Advisor. 

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements. **Share price and market cap are in native currency

Our TSI Dividend Sustainability Rating System generated six stocks: Canadian oil and gas major Imperial Oil Ltd. IMO-T and rival Suncor Energy Inc. SU-T, both headquartered in Calgary, generate production from oil sands and conventional wells to supply their refining and chemical operations. California-based Chevron Corp. CVX-N, as well as Texas-based Exxon Mobil Corp. XOM-N, both continue to use their strong cash flow to increase their dividends, as well as buy back shares. BP PLC BP-N and Shell PLC SHEL-N, both headquartered in London, remain two of the world’s biggest oil and gas producers, even as they expand their solar, wind, and hydrogen power operations.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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