3 best oil stocks to buy in September

Oil stocks surprised the markets this year, rising alongside oil prices. No one had predicted that oil prices would rebound as dramatically as they did last year: The price of West Texas Intermediate Crude (WTI), for example, is currently hovering above $ 83 a barrel after having negative in April 2020. Unsurprisingly, investors have invested a lot of money in oil stocks, and if you think there is no more steam, think again.

Despite the surge in oil prices, the biggest oil producers have historically capped production and capital spending and use all the money instead to pay down debt, buy back stocks and pay large dividends to shareholders. . These stocks should still be able to give you good returns, even if oil prices fall. With profits just around the corner, here are three of those top oil stocks to buy this month.

Solid growth in cash flow makes it a tempting oil stock

ConocoPhillips (NYSE: COP) has just about all the right ingredients to make an oil stock a solid choice: it aggressively builds up reserves at low cost, generates shipments of cash, and richly rewards shareholders.

In fact, between June only and now, ConocoPhillips has significantly increased its cash flow projections with a new acquisition. After significantly expanding its low-cost resource base by acquiring Concho Resources last year, ConocoPhillips will now acquire Royal Dutch Shell‘s (NYSE: RDS.A)(NYSE: RDS.B) Permian Basin assets for $ 9.5 billion in cash.

Image source: Getty Images.

With these deals, ConocoPhillips’ cash flow breakeven point will drop to $ 30 a barrel. And if the price of WTI averages $ 50 a barrel through 2031, ConocoPhillips predicts it could:

  • Generate $ 165 billion in operating cash (CFO).
  • Generate $ 80 billion in free cash flow.
  • Return $ 76 billion of CFOs to shareholders in the form of regular and special dividends.

Notably, ConocoPhillips will still retain nearly $ 10 billion in liquidity at all times over the 10 years to maintain liquidity, so this is a well-balanced capital allocation policy.

So if you buy ConocoPhillips shares now, here’s what you can expect: higher cash flow, growing dividends, and share buybacks, which with the share yield of 2.5 %, could potentially generate double-digit annual returns on your stocks. At oil prices above $ 50, the upside could be even greater. While Wall Street expects sales of ConocoPhillips to more than double in the third quarter, the oil title’s next quarterly release on November 2 could be important.

This oil stock wants to pay you bigger dividends than ever

Devon Energy (NYSE: DVN) will also release its third quarter results on Nov. 2, but Wall Street has even higher expectations of this oil stock and expects nearly 200% sales growth and 60% profit growth in the third quarter.

Above all, beyond its quarterly figures, what matters is Devon’s ability to effectively return capital to long-term shareholders. The oil stock could easily pass this test thanks to its unique new policy of more variable fixed dividend.

So Devon pays a fixed and regular dividend and supplements it with special dividends of up to 50% additional cash flow (the cash flow left over after capital expenditure and the fixed dividend) every quarter. With the rise in oil prices, that could mean heavy dividend checks ahead. For example, Devon’s total dividend of $ 0.49 per share last quarter increased 44% sequentially.

Devon has a proven track record with uninterrupted dividend increases over the past 28 years, but potentially faster dividend growth under its new dividend policy is a double boon for shareholders. With leading assets in the basin at Anadarko, Eagle Ford, Williston and Powder River and having paid off substantial amounts of debt in recent quarters, Devon can afford to pay large dividends at current oil prices, this which makes it one of the main oil stocks to own.

This 6.2% yield stock is making big growth moves

My last pick is also among the best oil dividend stocks: based in Canada Enbridge (NYSE: ENB) has increased its dividends annually for 26 years, at a strong compound annual rate of 10% over the period. This dividend growth is why long-term investors, even in a volatile industry like oil and gas, could reap such huge returns from their Enbridge shares.

The other reason is Enbridge’s relatively ‘safe’ oil and gas business: 98% of its oil and gas storage, transportation and delivery services are contracted out, which means cash flow of the energy infrastructure company are reliable even in a country with low oil prices. environment that could otherwise hit oil refiners hard.

ENB chart

ENB data by YCharts

Enbridge has several growth catalysts to come. First, its Line 3 replacement project is finally complete after nearly eight years of work and operation, as Enbridge reported in September. Second, Enbridge has just acquired Moda Midstream Operating to expand its export capacity along the Gulf Coast. As the completion of Line 3 and the acquisition of Moda comes just before the winter season, when demand for oil and gas is seasonally high, they could help Enbridge significantly increase volumes.

In the last quarter, Enbridge generated $ 2.5 billion in distributable cash flow (DCF) and guided a DCF of $ 4.70 to $ 5.00 per share for 2021, compared to $ 4.67 in DCF generated in 2020. As the DCF indicates the amount of cash available for distribution to shareholders, a rising DCF should ultimately mean larger dividends.

With soaring oil and gas prices in recent weeks and some producers announcing plans to increase production, I expect strong numbers and outlook for Enbridge’s third quarter on November 5, making that 6.2% yield one of the best high-yielding oil stocks to buy.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

Steve R. Hansen

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