The energy sector has witnessed a turbulent ride in 2023 amid persistent inflation and rising interest rates. The Energy Select Sector SPDR Fund (XLE), tracking the S&P 500 Energy Index, has managed a modest 6.7% year-to-date gain, compared to the more robust 17% increase of the S&P 500 Index ($SPX).
However, as OPEC+ members continue to curb production, oil prices are once again on the ascent. The October delivery crude oil futures contract (CLV23), the most active, recently reached its highest price in a decade due to supply cut extensions by Saudi Arabia and Russia, in addition to forecasts from the Energy Information Administration (EIA) predicting increased demand over supply.
With the surge in oil prices, it’s an opportune moment to consider adding top energy stocks to your portfolio. Here are three energy companies that not only offer attractive dividend yields but also boast significant growth potential as projected by analysts.
Marathon Oil
Marathon Oil (NYSE:MRO), founded in 1887, is engaged in oil and gas exploration with operations in the United States and Africa. With a market capitalization of $16.42 billion, the company offers a dividend yield of 1.44%. Though its shares have only risen by 2% this year, they have lagged behind XLE.
Marathon Oil reported a decrease in revenue and earnings for the most recent quarter compared to the previous year, but both figures exceeded Street estimates. Despite a 34.3% drop in revenues to $1.5 billion, the company managed to beat earnings expectations, with EPS at $0.48, down 63.6%. Impressively, Marathon Oil has consistently outperformed earnings estimates in the past five quarters.
The company also saw an increase in net production, reaching 399,000 thousand barrels of oil equivalent per day (MBOE/d) in Q2, a 16.3% rise from the prior year. Crude oil production also climbed to 189,000 MBOE/d, up by 13.2% from the previous year.
Marathon Oil’s substantial reserves, as of December 31, 2022, amount to 1.34 billion BOE, with 91% in the US and 9% in Equatorial Guinea. Nearly half of these reserves consist of crude oil and condensate.
Analysts remain optimistic about Marathon Oil, with a consensus “Strong Buy” rating and a mean target price of $32.89, reflecting a potential upside of approximately 20.5%.
Enterprise Products
Headquartered in Houston, Texas, Enterprise Products (NYSE:EPD) provides midstream energy services for natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals. The company’s extensive infrastructure includes over 50,000 miles of pipelines, more than 260 million barrels of storage, 20 deep water docks, 30 natural gas processing plants, and 26 fractionators across the US and Canada.
Despite a challenging second-quarter earnings report, Enterprise Products boasts a market capitalization of $58.01 billion and an impressive dividend yield of 7.32%. While the stock has gained 10.9% year-to-date, it did experience a setback following the Q2 report.
Enterprise Products reported declining revenue and earnings for the quarter ended June 30, with revenues down 33.7% to $10.65 billion and EPS at $0.57, a decrease of nearly 11%. This earnings miss was an exception, as the company had exceeded analysts’ expectations in four of the last five quarters.
Notably, the company transported more crude oil and refined products in Q2 compared to the previous year, with 7.1 million barrels per day (BPD) versus 6.6 million BPD.
Analysts maintain a consensus “Strong Buy” rating for Enterprise Products, with a mean target price of $31.46, suggesting an upside potential of around 17.5%.
Devon Energy
Devon Energy (NYSE:DVN), an oil and gas exploration and production company founded in 1971, operates primarily in various US basins and holds a market capitalization of $33.91 billion. Offering a substantial dividend yield of 8.52%, the company has struggled in 2023, with a YTD decline of over 9%.
In line with its peers, Devon Energy reported a year-over-year decrease in revenue and earnings for the second quarter. Q2 revenues of $3.45 billion marked a 38.6% decline from the previous year, while core EPS of $1.18 represented a 54.4% drop, though it surpassed consensus estimates. Devon Energy has consistently beaten earnings expectations in four of the last five quarters.
Additionally, the company reported its highest-ever average oil production in the quarter, up 8% to 323,000 barrels per day, with strong contributions from the flagship Delaware Basin.
Devon Energy’s commitment to the geothermal space was evident through a $10 million investment in next-generation geothermal power company Fervo Energy earlier this year.
Analysts maintain a “Moderate Buy” rating for Devon Energy, with a mean target price of $60.45, suggesting a potential upside of more than 12%.
In conclusion, these three energy companies, with substantial proven reserves, growing production capacities, and consistent dividend payments, are worth considering as the energy sector gains momentum.
Featured Image: Unsplash @ Frédéric Paulussen
