Our Favorite Oil Stocks for 2022 and Beyond

The oil industry has just had one of its best years for some time. Oil prices rebounded sharply as the global economy recovered from the pandemic and producers maintained tight control over supply. These favorable market conditions are expected to continue into 2022 and beyond as the world needs oil despite its transition to cleaner energy sources.

Against this backdrop, we asked some of our Fool.com contributors for their favorite oil stocks to own in 2022 and beyond. Here’s why they chose TotalEnergies (NYSE: TTE), ConocoPhillips (NYSE: COP), and Devon Energy (NYSE: DVN).

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Reuben Gregg Brewer (Total energies): If you are looking for an oil stock, you can go for a pure play exploration and production name. Or, if you’re a little more conservative, you would probably choose an integrated energy company with assets ranging from drilling (upstream) to refining and chemicals (downstream). I am a conservative, so this is my preference. But there is more to the story here because some oil majors, like ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) stick to oil, while others, like my favorite, TotalEnergies (NYSE: TTE), are looking to slowly shift their portfolios towards clean energy.

TotalEnergies is not alone; peers Royal Dutch Shell (NYSE: RDS.B) and PA (NYSE: BP) also use their oil profits to finance clean energy investments. However, of this trio, only TotalEnergies undertakes this path without dividend reduction. And it is not abandoning oil and natural gas, with the aim of developing both its energy activity (with a move towards cleaner burning natural gas) and its “electron” activity at the same time. This allows me to own a growing energy business and a growing renewable energy business with just one investment.

TTE Dividend Yield Chart

TTE Dividend Yield Data by YCharts

Meanwhile, I’m collecting a 6% dividend yield, the best in the industry, as this diverse oil company carefully adapts to the world around it. It’s a somewhat flat option but it allows me to sleep well at night in a sector subject to volatility at the best of times and facing a sort of existential crisis today.

Return of the windfall to investors

Matt DiLallo (ConocoPhillips): Oil giant ConocoPhillips has taken several steps in recent years to cut costs in order to generate more cash flow. His last move was to acquire Shellin the Permian Basin to increase its size in this low cost oil basin. This strategy is paying off big for investors.

ConocoPhillips plans to return $ 7 billion to shareholders in 2022. That’s 16% more than last year’s total. He has a three-tiered program in place to send money back to investors:

  1. The basic quarterly dividend: ConocoPhillips has increased its Payment dividend by 7% to $ 0.46 per share at the end of last year. During the current course of action, the dividend yield is 2.4%, almost double that of the S&P 500. At the current rate, the company will pay out $ 2.4 billion in dividends this year.
  2. Share buybacks: ConocoPhillips plans to repurchase $ 3.5 billion of its shares this year, with $ 1 billion funded by the sale of its remaining shares in Cenovus Energy.
  3. Variable cash yield: ConocoPhillips plans to distribute approximately $ 1 billion in additional cash to shareholders via a variable cash return. He plans to make these payments quarterly, with the first set at $ 0.20 per share.

Overall, ConocoPhillips expects to return more than 30% of its expected cash flow to shareholders in 2022 and expects low single-digit production growth in 2022. It will use the remainder of its cash flow for expansion. of its operations, reducing emissions and maintaining a high-level track record. This focus on growing its cash flow and returning it to shareholders is why ConocoPhillips is my favorite oil stock to own for years to come.

Superior dividends for industry

Neha Chamaria (Devon Energy): Devon Energy began paying the oil industry‘s first more variable fixed dividend in 2021. The company has adopted a policy of supplementing a fixed dividend with a special dividend equivalent. The amount represents up to 50% of the cash flow remaining after the payment of capital expenditure and a fixed dividend in any given quarter. This dividend policy has contributed immensely to increasing returns for shareholders over the past year; the company paid $ 1.97 in total dividends per share in 2021 compared to just $ 0.68 per share in 2019.

Shareholders can continue to expect strong returns from Devon Energy this year. The point is that oil prices are holding up for now thanks to multiple factors, including the disruption of supplies from Libya, with the country repairing major pipelines and declaring force majeure on exports from Libya. oil. In addition, OPEC is sticking to its plan to increase oil production only gradually per month. This is good news for Devon Energy shareholders, as the company’s cash flow, and therefore the variable dividend, is dependent on oil prices.

Even if oil prices were to fall, Devon Energy is on solid footing, having started 2021 with an all-equity merger with WPX Energy, then using the rest of the year to pay down debt and strengthen its balance sheet. With West Texas Intermediate (WTI) crude priced at $ 75 a barrel, Devon Energy expects its cash flow to grow by more than 35% in 2022. At that rate, its total dividend could potentially increase by nearly 80% this time. year compared to 2021. That’s huge, and when combined with the oil company’s latest share buyback program, could translate into strong returns for shareholders.

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 motley! 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