NEW YORK (TheStreet) -- Big Oil generally brings to mind Texas and companies headquartered in energy producing West and Midwestern states such as Chevron (CVX) , ConocoPhillips (COP) , Exxon Mobil (XOM) , and Occidental Petroleum (OXY) , among others.
But Big Oil companies that are based abroad such as BP (BP) and Royal Dutch Shell (RDS.A) can be just as attractive, especially when it comes to dividend income. For income investors, BP, Royal Dutch Shell, Total (TOT) , and Eni (E) are European oil companies with dividend yields at more than 4% that long term investors should find attractive for a variety of factors.
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Oil and natural gas is pretty much a global industry.
There are plenty of foreign oil firms with substantial holdings in Texas, and other American states. The recent 3 Reasons to Be Bullish About BHP Billiton Now Becoming Big Oil detailed the $20 billion that Australia-based BHP Billiton (BHP) held in energy assets based in Texas and other Southwestern states. News coverage of BP's operations in the Gulf of Mexico has certainly been ample since 2010. It really does not matter where an oil company is based, be it Houston or Holland, as the globe is the field of operations for major energy firms.
But the dividend yield matters a great deal to investors.
Kevin O'Leary, an investor who was on the advisory board of Genstar Capital, recently stated on CNBC that, "73% of the S&P 500's returns in the last 40 years came from dividends, not capital appreciation."
At present, the average dividend yield for a member of the Standard & Poor's 500 Index (SPY) is 1.88%. The chart below shows how much higher the dividend yield is for oil companies, especially those based in Europe. Chevron, Exxon, all have yields under 4%; with BP, Eni Spa, Shell and Total all being over that mark.
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When looking at the chart, keep in mind that a negative dividend growth rate does not necessarily mean the dividend was cut, rather that it did not increase as much as in the past. For example, the chart states that the dividend growth rate for Shell over the last five years is minus 18.77%. In 2009, the dividend was $3.20 a share. Now it is 94 cents a quarter, or $3.76 annually. The dividend amount for Shell never fell; it just did not rise as much as before due to the impact of the Great Recession.
The higher beta -- the volatility of a asset when compared to the market as a whole -- of the European oil stocks makes the dividend income feature even more alluring. When the price of a stock drops, the dividend yield rises. Due to the bigger beta, there is a bigger chance to lock in a bigger dividend yield; with BP as the most obvious example. As the chart shows, the stock price for BP moves more than twice that for Exxon, and much more than that for Chevron, and ConocoPhillips, among others. The projected 5-year growth rate in earnings is also much higher for BP, too, increasing its appeal.
A recent article detailed on TheStreet how oil is now being viewed more and more by investors as a "safe haven asset." Oil companies are very secure, stable investments. Higher dividend yields and higher betas for European oil stocks offer savvy long term investors the opportunity for rewarding total returns.
Read More: 7 Stocks Warren Buffett Is Selling in 2014TheStreet Ratings team rates BP PLC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate BP PLC (BP) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its increase in stock price during the past year, increase in net income, attractive valuation levels, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 65.0% when compared to the same quarter one year prior, rising from $2,042.00 million to $3,369.00 million.
- Net operating cash flow has increased to $7,877.00 million or 46.22% when compared to the same quarter last year. In addition, BP PLC has also vastly surpassed the industry average cash flow growth rate of -6.58%.
- The current debt-to-equity ratio, 0.40, is low and is below the industry average, implying that there has been successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.93 is somewhat weak and could be cause for future problems.
- You can view the full analysis from the report here: BP Ratings Report