NEW YORK (TheStreet) -- "Big Oil" stocks such as ExxonMobil (XOM), Chevron (CVX), ConocoPhillips (COP) and Phillips 66 (NYSE: PSX) are all down for 2014. But a short term rally is underway as the market has strengthened recently. Here are three reasons why long term investors should be bullish on ExxonMobil, Chevron, and others.
Big Money is betting on big oil.
Institutions investors, hedge funds and others are not always right. But their buying and selling influences the market. The Commodities Trading Futures Trading Commission reports that bullish wagering from hedge funds and other Big Money types is at a five-month high. Big Money got to be that way due to superior performance resulting from superior research and superior resources, so it is wise to at least monitor what it is doing, if not follow it.
Another bullish sign: Short-term and long-term factors are favorable.
Oil is around $100 a barrel again due to improving logistics. That has resulted in a short-term gain. However, the US Energy Administration just released a report predicting that oil would average $93 a barrel for 2014 and $90 a barrel in 2015.
The long-term outlook is bullish due to the increasing demand for energy and the shortcomings of coal, natural gas, and alternative power.
Coal is a dirty fuel source that even has countries such as China, the world's biggest consumer, vowing to reduce its dependence. Natural gas is the fuel for wealthy nations as it has soared in price and requires three sets of pipelines for delivery to the end user. As costly as natural gas is, alternative energy is even more expensive: The price for the new Ivanpah Solar Electric Energy Generating station in California is four times as much as a natural gas plant, it uses more land, and it will produce "far less electricity."
There also is no better income security than Big Oil equities.
While there is a record inflow of capital to bond funds in recent market action, the smart investors will return to stocks, especially Big Oil. Currently, the average corporate bond fund yield is 3.11%. In contrast, the dividend yield for ConocoPhillips is 4.23%. Over the last five years, the dividend growth rate for ConocoPhillips is 8.65%. For the industry, the average dividend growth rate is 5.93%.
At that rate of growth, the dividend amount for ConocoPhillips doubles about every 8 years. ExxonMobil is a "Dividend Aristocrat" stock, which means it has raised its dividend annually for more than 25 consecutive years. Increasing the amount of the income payment is not a feature associated with bonds. That is why savvy income seekers should go with Big Oil equities for long term growth.
For patient investors, there is an opportunity to buy Big Oil stocks at a discount due to the recent fluctuations.
As an example, ExxonMobil, the biggest oil firm in the world, is down more than 9% for 2014. But it is up over 2% for the last week. When ExxonMobil is trading 9% lower, that means the dividend is 9% higher. Big Oil looks to be in for a bumpy ride in the short term, but over the long term the increasing demand for energy and the dividend income growth should deliver rewarding total returns.
At the time of publication the author had no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.