Interactive Investor

Two dividend stocks back in buy territory

Revenue and profits at these firms may be down from the bumper year of 2022, but last year was otherwise the best for about 10 years, writes overseas investing expert Rodney Hobson. Our columnist also offers an update on a share defying gravity.

14th February 2024 09:08

by Rodney Hobson from interactive investor

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Carbon’s days as an energy source have supposedly been numbered for decades, yet oil and gas still show no signs of dying. The sector may be a no-go area for ethical critics with green credentials but less picky investors are still enjoying solid dividends and stable share prices.

While oil and gas prices have slipped back from the highs experienced after the Russian invasion of Ukraine, both Exxon Mobil Corp (NYSE:XOM) and Chevron Corp (NYSE:CVX) have partly offset lower prices with increased production. Revenue and profits may be down from the bumper year of 2022 but last year was otherwise the best for about 10 years.

ExxonMobil saw revenue down 12% to $84 billion and net income by 39% to $8 billion in the fourth quarter, taking the full-year figures to a fall of 17% in revenue and 35% in net income. However, the profit figure would have been much better without a $2.5 billion impairment charge for property in California that Exxon has been trying to sell for a year. This was painful but realistic.

Exxon Mobil performance chart

Source: interactive investor. Past performance is not a guide to future performance.

Chair Darren Woods is sufficiently satisfied with the figures to promise that he will return more cash to shareholders than rivals are doing. Last year $32.4 billion was paid out in dividends and share buybacks.

Chevron saw revenue fall 16% to $47 billion in the final quarter, with net income slumping 65% to $2.24 billion. This was a bigger fall than in the previous nine months, leaving full-year revenue down 18% and net income 40% lower.

Chevron performance chart

Source: interactive investor. Past performance is not a guide to future performance.

Like Exxon, it has been returning more cash to shareholders – a record $26.3 billion last year – while acquiring smaller rivals. Exxon has agreed to buy Pioneer Natural Resources Co (NYSE:PXD) to boost its shale oil production, while Chevron is taking over Hess Corp (NYSE:HES) to gain a foothold in Guyana. Both deals will be completed this year.

Environmentalists have attacked both companies for increasing their fossil-fuel capabilities rather than diversifying into greener energy but both clearly see a future for oil and gas.

Three attempts by Exxon shares to reach $120 have failed in the past 12 months and the stock is now down to $101, where the price/earnings ratio (p/e) is below the stock market average at 11.5, while the yield is above average at 3.6%.

Chevron shares have followed a similar pattern, peaking at $180 in late 2022 but slipping back to $150, with a slightly higher p/e at 14 and a yield just shy of 4%.

Hobson’s choice: I recommended Exxon at a marginally higher level early last February and the dividend has at least been some consolation for the failure of the shares to make headway. Later in the year, nearer the peak, I recommended that shareholders hold on but at the current level the buy rating is restored. Similar advice was given for Chevron, which is also back into buy territory.    

Update: there is still no let-up in the bad news surrounding flaws in Boeing Co (NYSE:BA)’s 737 Max aircraft. Deliveries are delayed after it turned out that holes had been drilled the wrong distance apart in window frames on some jets. How on earth can that happen? About 50 planes need to be fixed, taking the shine off news that most of the grounded aircraft flown by Air Alaska and United Airlines Holdings Inc (NASDAQ:UAL) are back in service. Remarkably, after a sharp fall from $260 at the end of last year the shares have managed to defy gravity and the chart has formed what looks like a solid floor at $200. Nonetheless, given the absence of profits and dividends, plus the propensity for Boeing to stagger from one safety crisis to another, the shares remain a sell.

Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.

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