Vanished: $50 Billion

| November 24, 2014 | 0 Comments

Image by Unsplash

Cheap Oil & Gas Dividend Stocks


$50 billion has vanished.

It’s been wiped off the books of oil companies because crude oil prices have taken a 29% plunge over the past five months.

And you guessed it. That’s $50 billion less for oil companies to tap into to pay dividends.

What does this mean? Should you run for cover and steer clear of cheap oil and gas dividend stocks, or can you pick up a good deal?

Most headlines show smiling faces filling up at the pumps. But should you be smiling if you’re a dividend investor looking for income from energy stocks?

Here’s How To Find A Cheap Oil & Gas Dividend Stocks

First, don’t confuse cheap with quality.

Finding a stock that trades at a low price is easy. Finding a good stock, where a solid company that’s going to take care of you with dividends… that’s another story.

When you go to places like Houston and talk to people in the oil and gas business, there’s a question they’re all asking, something they’re all wondering about.

They want to know what kind of money energy companies can make when a barrel of crude falls below the $70 mark.

Enough to pay a nice dividend? Or are plunging crude oil prices an unmistakable signal of dividend danger ahead?

Before you run for the exits, hold on. Behind the headlines, something important is happening. And it’s something you can make money from.

When markets are rattled, and the oil market is definitely rattled these days, there is always opportunity.

Here’s how to find oil and gas dividend stocks that give you this opportunity, and are in the best position to take care of investors when cash gets tight. 

Zero In On Cheap Oil & Gas Dividend Stocks 

Let’s be realistic. For the oil and gas companies, cash is definitely tight. And a cash flow crunch is never something a dividend investor wants to see.

This means you’ll find the best oil and gas dividend stocks where there’s strong management, a strong balance sheet, and a willingness to make hard decisions to ride out the tough times.

Focus on cash flow when you look for the top dividend stocks. Check out how decisions on spending are made. For a good example, look at ConocoPhillips (COP).

ConocoPhillips is tightening the belt, but it’s not squeezing dividend investors. It’s increased its annual dividend by 5.8% to $2.92.

The company plans to cut spending next year by up to 5%. But instead of slashing dividends, it’s going to shut down some operations. ConocoPhillips will turn off production where costs are high, and where it can’t make money.

But it also plans to increase production from more efficient operations so revenues won’t take a hit.

This kind of diversity, these kinds of choices, aren’t available for smaller companies.

Cheap Oil & Gas Dividend Disaster Stocks 

Look at this list of 5 cheap oil and gas stocks that pay a high yield dividend…

Stock Yield Annual Payout Payout Ratio
Linn Energy, LLC (LINE) 12.65% $2.89 177.9%
Niska Gas Storage Partners LLC (NKA) 26.92% $1.40 NM
North Atlantic Drilling Ltd. (NADL) 24.24% $0.96 NM
LRR Energy, L.P. (LRE) 14.93% $13.33 216%
QR Energy, L.P. (QRE) 13.22% $14.75 156%

Pretty nice yields, aren’t they?

But there are two things about the stocks on this list that mean each one is a disaster waiting to happen.

First, not one of these companies is diversified. Each has a narrow focus.

One company does nothing but storage, one drills offshore wells, and three are producers.

This means there’s no safety net. When oil prices tumble and production slows down, these “independents” are stuck.

The other problem is the dividend payout ratio.

They payout ratio is the amount of dividends going out the door, compared to the company profits. So, if a company paid out all of its earnings as dividends, you’d have a 100% payout.

Look at the high numbers. Each one of these companies is dipping into more of its cash to pay dividends than it can afford.

These companies aren’t just digging for oil and gas. They’re digging a financial hole.

So now that you know about some of the ugliness to avoid, check out the big, global energy companies. The so-called “major integrated oil and gas companies.” 

Your List Of Cheap Oil & Gas Dividend Stocks

The big outfits don’t have all their eggs in one basket.

And that’s where you should look right now… stocks like Exxon Mobil, Chevron, Shell, Conoco Phillips, and BP.

Their share prices aren’t cheap… only BP trades below the $70 mark.

But when you look at their Price Earnings ratios, you’ll see that each one of these stocks is definitely cheap.

The P/E ratio is the stock price divided by annual earnings per share. This number shows you what you pay to get earnings.

They are all priced below the broad market average of 18. That’s what you see when you look at the SPDR S&P 500 ETF (SPY).

And one of these stocks, Conoco Phillips, is actually on sale right now at almost 50% off, with a P/E ratio of 9.51. Now there’s a cheap oil & gas dividend stock.

Should You Invest In One Of These Cheap Oil & Gas Dividend Stocks?

So what’s a smart dividend investor do?

Pick up a bargain?

Well… in a market that’s just turned in another strong year, energy stocks have been going in the opposite direction.

Look at what’s happened with the stock price for an ETF that tracks them, the Energy Select Sector SPDR ETF (XLE).

Energy Select Sector SPDR ETF

If you figure the party at the gas pump won’t last long, and that crude oil pries will start edging back up sooner rather than later, there are definitely some cheap oil and gas dividend stocks.

Just stick to the big boys… the major integrated companies.

But if you think we’re in for a long stretch of lower energy prices, it’s probably best to go drilling for dividend stock profits someplace else.

Exxon Mobil Corp (XOM

Dividend Yield: 2.91%
Annual Payout: $2.76
Payout Ratio: 36.2%
P/E: 11.93

Chevron Corp. (CVX 

Dividend Yield: 3.71%
Annual Payout: $4.28
Payout Ratio: 39.9%
PE: 10.64

Royal Dutch Shell (RDS.A 

Dividend Yield: 5.37%
Annual Payout: $3.76
Payout Ratio: 49.2%
PE: 13.78

Conoco Phillips (COP

Dividend Yield: 4.07%
Annual Payout: $2.92
Payout Ratio: 49.4%
PE: 9.51


Dividend Yield: 5.83%
Annual Payout: $2.40
Payout Ratio: 57.7%
PE: 13.84

Note: Michael Jennings writes and edits Sign up for our free dividend reports and dividend newsletter at We’ll show you how to create regular income by investing in dividend stocks, easily, step-by-step.

Tags: , , , , , , ,

Category: Cheap Dividend Stocks

About the Author ()

Michael Jennings writes and edits showing how you can profit from dividend stocks. His passion for stocks and especially Dividend Stocks began at an early age. Now he shares his knowledge and wisdom with anyone who asks... He shows beginning investors, retirees, and even trading pros how to create regular income by investing in dividend stocks, easily, step-by-step! You can Sign up for his free Dividend reports and dividend newsletter at

Leave a Reply

Your email address will not be published. Required fields are marked *