Among large-cap energy names, Pioneer Natural Resources Co. (NYSE: PXD), Devon Energy Corp. (NYSE: DVN) and Kinder Morgan Inc. (NYSE: KMI) pay some of the highest dividend yields among their sector peers in the S&P 500.
While yield is certainly a crucial component of investing (and high yields command attention), it’s always important to remember that yield can be a double-edged sword.
Yield, expressed as a percentage, refers to how much a company pays in dividends relative to its stock price. It's expressed as a percentage, calculated by dividing the annual dividend payment by the current stock price. When the stock price decreases, and the dividend payment remains the same, yield increases.
This happens because the stock is now cheaper, so the same dividend payment represents a higher percentage of the stock's value. The dividend yield is a way to measure how much income you would earn from owning a stock based on its current price and the current payout to shareholders.
Therefore, when screening for dividend payers, don't overlook large cap energy stock fundamentals and the ability to sustain profitability and dividend payments over time.
Pioneer Natural Resources
The first thing to know about Pioneer is that Exxon Mobil Corp. (NYSE: XOM) has reportedly been discussing acquiring the shale drilling giant. If a deal comes through, the stock will almost certainly follow a familiar trajectory of going significantly higher and remaining at that level.
A stock is essentially not worth buying after an acquisition is announced, as it’s unlikely to rise much, if at all. Of course, any deal can fall through, and regulators may look askance (to say the least) at one oil-and-gas titan acquiring another, but a scotched deal would send shares lower.
There may be a limited window of opportunity for investors intrigued by Pioneer. The company focuses on acquiring, developing and producing oil, natural gas and natural gas liquids. It operates primarily in the Permian Basin of West Texas and southeastern New Mexico.
In December, Exxon Mobil said it would invest in more projects to meet future demand, with more than 70% of capital investment deployed in oil-producing regions and industries where it hopes to expand its presence, including the Permian Basin.
Pioneer’s dividend yield is 11.3%. The company is due to report first-quarter results on April 26 after the market’s close. Wall Street expects earnings of $5 a share on revenue of $3.82 billion. Watch for an announcement about the next quarterly dividend and potentially news about an acquisition.
Devon is an oil and natural gas exploration and producer operating primarily in the Anadarko Basin and Barnett Shale in the U.S., the Barnett Shale, and the Canadian oil sands.
Continuing with the topic of acquisitions, Devon completed two purchases last year, acquiring assets in the Williston Basin and Eagle Ford for $2.5 billion.
Merger and acquisition activity is common in the highly competitive energy industry. Those acquisitions were well-timed for Devon to benefit from higher oil prices this year following the OPEC+ surprise production cut in early April.
At a recent Bank of America oil and gas summit, Devon executives said the company “subscribes to the view that companies with greater scale perform better compared to peers,” according to Bank of America analysts.
“Its corporate development team is active in assessing all opportunities that come across its desk,” Bank of America said, adding that Devon understands “the path to improved margins comes through better cost control, and more efficient cost structures, indicating that any deal is likely to contain upside from synergies capture.”
For would-be investors, that means Devon has a keen eye on managing costs to drive higher margins. That philosophy reflects in 2022’s acquisitions.
Devon’s dividend yield is 9.1%. The company reports first-quarter results on May 8, after the close. Wall Street pegged earnings at $1.46 a share on revenue of $4.44 billion, a decrease on the bottom line and an increase on the top line.
Right off the bat, here's something important to know about Kinder Morgan: The company reports earnings very soon, on April 19, after the market’s close.
That means that anyone considering an investment in the stock might think about waiting until after the report, in case there’s disappointing news, even an offhand remark in the earnings conference call, that sends the stock lower.
If Kinder Morgan races higher after the report, that’s generally a signal of more gains to follow and could put a stock in the “buy” category. Note that is should fit your risk tolerance and other portfolio objectives first.
MarketBeat dividend data for Kinder Morgan show the company has boosted its payout for the past five years. Its dividend yield is 6.26%.
Kinder Morgan is one of the largest energy infrastructure companies in North America. It owns and operates pipelines and terminals for transporting natural gas, crude oil, petroleum, and other related products. It also provides storage and transportation services for various commodities, including carbon dioxide and renewable fuels.
When it reports on April 19, analysts expect earnings of 29 cents a share on revenue of $4.67 billion.
Pipeline and transport companies often have smoother sales and earnings than explorers and producers because their revenue is pegged to long-term contracts, rather than fluctuations in oil and gas prices. Changes in demand for energy products can dent revenue, but generally, these companies have more stable income streams.
Kinder Morgan’s chart shows a consolidation that’s been forming since June. This base may be particularly constructive, as it undercut prior lows, often setting the stage for bargain hunters to swoop in and raise the price. Watch the stock pass the current buy point north of $20.20.