The upcoming presidential election has given a boost to oil and gas stocks. As one of the most important sectors of the economy, each government makes policies on oil and gas. While some think that their usage should be reduced and countries should move towards renewable energy, others think that the usage of oil and coal should never stop. Logically, even if countries move towards renewable energy, the demand for oil and gas will never drop to zero. The oil and gas business is massive and countries spend billions for the purchase of crude oil. With the soaring crude oil prices, oil stocksare set to have a terrific year.
Driven by the rise in power consumption, the oil and gas industry is going to grow at a massive rate. If you want to make the most of this upside, here are three oil stocks to buy this month. These companies pay dividends, have an impressive cash flow, and have the potential to rally. After all, the world runs on oil.
Chevron (CVX)
Chevron (NYSE:CVX) is the first name that comes to mind when talking about oil and gas companies. One of the best oil companies, it remains a top choice because of its diversified business. It has an upstream, midstream, and downstream business which ensures steady revenue growth. It also has a solid balance sheet which helps it sustain the ups and downs of the energy cycle.
A dividend aristocrat, Chevron has consistently increased dividend payouts for 37 years and has already returned $6 billion to shareholders this year. It has also entered the hydrogen industry this year and aims to start production by early 2026.
While the company already has a strong cash flow position, its merger with Hess (NYSE:HES) will open new avenues for the business. It could lead to a significant improvement in cash flow by 2025. The merger will give access to Guyana assets and the Bakken Shale and the company expects $1 billion in pretax after the purchase.
It is aiming to close the acquisition by the end of the year. The company believes it can double the free cash flow by 2027 and it is aiming for a 10% annual growth in free cash flow through 2027 at $60 per barrel.
Up 6% year-to-date, Chevron is exchanging hands for $159 and has a solid dividend yield of 4.09%. It reports on August 2.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is always mentioned when talking about oil and gas companies. The company reported earnings of $8.2 billion in the first quarter and generated $10.1 billion in free cash flow. It recently closed the purchase of Pioneer Resources for $60 billion which will provide access to valuable shale plots owned by Pioneer. This move will double Exxon’s production in the Permian and boost the cash flow margin.
Exxon Mobil has several catalysts that are working in its favor. It purchased Denbury, a carbon capture and storage firm for $4.9 billion while it is set to enter the hydrogen industry with a partnership with Air Liquide.
It will enable Exxon Mobil to be a part of a massive future market opportunity where it will transport low-carbon hydrogen through the Air Liquide pipeline. The company understands the changing times and is pivoting the business in the right direction.
Exchanging hands for $118, the stock is up 15% YTD and moving closer to the 52-week high of $123. XOM stock enjoys a dividend yield of 3.22%, making it an ideal choice for passive income investors. The company is set to report results on August 2. No matter who wins the elections, Exxon Mobil is going to remain a strong player in the oil industry and you will never regret owning the stock.
ConocoPhillips (COP)
ConocoPhillips (NYSE:COP) is a significant part of the upstream business of the oil sector. It produces, transports, and markets crude oil in addition to other products, which makes it a diversified company.
Like the other two companies mentioned here, ConocoPhillips has also been in the news for the purchase of Marathon Oil (NYSE:MRO) for $22.5 billion. All three companies are making efforts to buy smaller oil companies and expand their footprint.
The transaction is expected to finalise by the end of the year and the company will gain more than 2 billion barrels of reserve through this move. Within three years of the purchase, ConocoPhillips is aiming to buy back $20 billion worth of shares.
In the first-quarter results, the company saw an EPS of $2.15 and generated a cash flow of $5.1 billion. Trading for $109, the stock is down 6% YTD and this dip is a chance to buy. It has dropped from the 52-week high of $135 in April to close to its 52-week low today. One reason to buy the stock is its dividend.
Besides paying a regular dividend, the company also pays a variable dividend which has remained consistent at 20 cents per share for the past few payments. It has a dividend yield of 3.50% and increased dividends for 8 consecutive years.
On the date of publication, Vandita Jadeja did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.