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When Investing in Africa, Go Big Oil or Go Home

Stocks in this article: AFK UL TOT SSL RDS.A OXY

NEW YORK (TheStreet) -- Africa's robust growth potential has the World Bank projecting it as one of the strongest economies for the future. A previous article on TheStreet detailed how investors can profit from a prosperous Africa with such securities as Market Vectors Africa (AFK), Unilever (UL), and Total SA (TOT).

There are three reasons why Sasol (SSL), a major oil firm headquartered in Johannesburg, can be the most promising investment for profiting from the improving African economy.

1. For a growing economy, investing in Big Oil should lead to big gains.

Not only is oil the most widely used fuel source around the world, there are other goods vital for an economy. Sasol brings to market coal, synfuels, natural gas, chemicals and lubricants, in addition to operating a chain of gas stations. Rising economic activity around the world and in Africa will increase the demand for the goods and services of. The World Bank report, Africa's Ample Resources Provide an Opportunity for Inclusive Growth, states that "strong domestic demand and thriving mineral, metals, and oil exports will drive this growth."

2. Big Oil stocks are also excellent for big dividend yields.

At present, the average dividend yield is just under 2% for a member of the Standard & Poor's Index. The dividend yield for Sasol is 4.5%. The dividend is secure given that Sasol is a very profitable oil company with a low dividend payout ratio. The profit margin for Sasol is 33.9% with a dividend payout ratio of 18.7%. By contrast, ExxonMobil (XOM), the world's largest oil and natural gas entity, has a profit margin of 7.6% and a payout ratio of 33.4%.

From the history of Sasol's dividend, stockholders should look forward to future increases. The 5-year dividend growth rate for Sasol is 10.3%. For ExxonMobil, it is 9.54%. The industry's 5-year dividend growth rate is a negative 1.55%. A dividend framework like that makes Sasol very appealing to income investors.

3. Sasol is not just a play on Africa.

With 35,000 employees in 37 countries, the oil giant operates globally. For example, Sasol's gas-to-liquid facility is the largest direct foreign-owned investment in the state of Louisiana. Shareholders can benefit from growth in Africa, but also the protection of diversified operations around the world.

Due to violence in the oil regions of Nigeria and other areas in Africa, energy concerns such as Royal Dutch Shell (RDS.A) and Occidental Petroleum (OXY) are selling off assets. That will work to the advantage of Sasol; other oil companies will eventually want to return to an area with the fossil fuel potential of Africa. Based in Africa, Sasol is not going anywhere and can now buy on the cheap with others selling in is home continent.

Solidifying its position as the biggest publicly traded major oil firm in Africa, Sasol is well-positioned to profit from its growth for the future.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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