More than just a few DRIPS in the bucket:
Energy stocks are here to stay - February 25, 2003
by Steve Gail
How many times do we go through this? The threat of war, long lines at the gasoline pumps, seasonal price increases, OPEC decreases in oil production, Government instability in Latin American oil producing companies. It just never ends! Well, if you can't beat them, join them. Today, we will take a look at some of the more enticing oil related corporations that currently offer both Dividend reinvestment programs and optional cash investment programs to the public.
There is no question that the supply and demand game is played to its finest by the major oil companies; domestic and international. The only issue that remains is how long they can continue to be able to achieve this cyclical and economic phenomena.
Unfortunately, as a consumer, I don't see any end to it. However, as an investor, with every adverse situation; there emerges an opportunity to prosper. Let's take a look at some of the major players in the oil-related industries and see who has the best DRIP opportunities for us to participate. Once again, I will remind you that the best DRIP situation is one that also offers the optional cash participation and preferably an automatic reinvestment program. After careful consideration here is a short list for your information.
As you will notice, there are several household names among the list above, However; there are some maybe not known as well.
If you look at the top of the list you will see that Chevron-Texaco offers a dividend of around $2.60 a share (yielding annually a current yield of 4.20%, (considering where short term money market rates are, not bad). The list ranges from $2.65 a share down to as little as $0.04 a share (XTO Energy). In addition the first five (5) on the list offer a dividend per share of at least $1.00. Again, not to sound like a broken recording, investors should still take the necessary time to do
their own due diligence research before making ANY investment decision regarding a company they are considering for a Dividend Reinvestment Plan.
As a guide take a look at Exhibit A graph below, it will give you an idea of the performance of the first 5 companies priced from 12-01-88 to 12-31-02.
EXHIBIT A: [source Morningstar]
It is interesting to notice that both Chevron-Texaco and Conoco-Phillips both returned annualized returns of over 10% (including both down and up years **).
The energy sector offers a lot of extended potential, based on the inherent believe that this country as well as the rest of the world will continually have a reliance on energy resources from now until the unforeseeable future.
As long as there is a need for a readily available reserve of fuel; and that resource is control by the oil companies in the form of crude and energy related commodities, Oil prices will continue to rise and fall; as a premium is placed on oil in the industrial developed nations throughout the world.
As long as those industrialized countries continue to not make a conscience effort to look for alternative energy resources, oil companies will continue to enjoy a wave of profitability.
To see an example of how profitable these companies have been, examine Exhibit B below. (remember past performance in the way guarantees future results.)
EXHIBIT B [source morningstar]
The Drip Advisor may look into "Environmentally Correct" companies that offer DRIPS in an article in the near future
So until next time,
** The key to Chevron-Texaco and Conoco-Phillips double-digit return is that they minimized the number of down years that each had over that extended period of time.