Notorious volatility is an integral part of the energy sector, as reflected in the wild swings in oil prices since the onset of the coronavirus pandemic. However, due to some key factors, dividend-paying stocks in the same space are relatively less volatile, thereby making Marathon Petroleum Corporation MPC, Valero Energy Corporation VLO and Phillips 66 PSX well-poised to gain.
Extremely Volatile Energy Market
We should not forget how oil prices have behaved since the beginning of the coronavirus outbreak. The initial pandemic period, when there were no vaccines, saw an environment of heightened uncertainties. The commodity’s price plunged to a negative $36.98 per barrel on Apr 20, 2020.
However, with the rapid developments of vaccines, which in turn led to the gradual opening of the economies, the pricing scenario of West Texas Intermediate crude improved drastically over time to reach $123.64 per barrel on Mar 8, 2022. Oil price data are per the U.S. Energy Information Administration.
Dividend Stocks to the Rescue
Overall oil pricing scenario seems scary, which could easily deter an investor from allocating money to energy companies. Despite this volatility constraint, investors could consider dividend-paying companies belonging to the industry. This is because, generally, companies with stable dividend-paying history are usually relatively less volatile than stocks with no dividend history. It is expected that companies that have been rewarding stockholders with dividends will try their best to continue paying at the same pace or higher, making the stocks attractive and less volatile to the vagaries of the market.
We have employed our Stock Screener to zero in on three such stocks. Two of the stocks sport a Zacks Rank #1 (Strong Buy), while one carries a Zacks Rank #2 (Buy). With a dividend yield of more than 2%, all the companies have raised dividends over the past five years. Moreover, with a payout ratio of less than 60%, the companies ensure sustainability with enough scope for future dividend increases.
3 Stocks in the Spotlight
Marathon Petroleum Corporation: As a leading, integrated, downstream energy player, Marathon Petroleum is the operator of the largest refining system in the nation. Handsome margins and throughput in all regions are aiding MPC. #1 Ranked Marathon Petroleum pays out a quarterly dividend of 58 cents ($2.32 annualized) per share, which gives it a 2.21% yield at the current stock price. (Check Marathon Petroleum’s dividend history here).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Valero Energy Corporation: In the United States, Valero is a premier refiner with its key assets cluster around the lucrative Gulf Coast area. Being the second largest renewable diesel producer in the world, Valero is well-poised to gain, thanks to global low-carbon fuel policies. VLO, with a Zacks Rank of 1, pays a quarterly cash dividend on the common stock of 98 cents ($3.92 annualized) per share. (Check Valero Energy’s dividend history here).
Phillips 66: Phillips 66 is a diversified energy manufacturing and logistic player, having a presence in Midstream, Chemicals, Refining, and Marketing and Specialties businesses. With a strong focus on disciplined capital allocation and maintaining financial strength, PSX is well-positioned to continue rewarding shareholders with dividend growth. Zacks #2 Ranked Phillips 66 pays a quarterly cash dividend on the common stock of 97 cents ($3.88 annualized) per share. (Check Phillips 66’s dividend history here).