At first glance, the idea of dividend stocks to buy as oil prices soar seems incredibly contrarian. Although the alliance between the Organization of the Petroleum Exporting Countries (OPEC) and non-member oil-producing nations — known as OPEC+ — in early April sparked initial fears because of their surprise production cuts, prices have been relatively muted.
Nevertheless, forward-looking investors should keep the best dividend stocks for oil price surges in mind. As CNBC pointed out when interviewing various experts on the matter, demand from India, as well as China’s reopening, may eventually boost prices. To be sure, it’s a contested topic. Nevertheless, crude oil moving higher isn’t a zero-probability event. And to reiterate, the OPEC+ cut implies that the Federal Reserve isn’t the only major influencer of the dollar. It’s not impossible for another production cut to materialize. Therefore, investors should keep the dividend stock winners from the oil price rise list in mind.
| CAT | Caterpillar | $210.03 |
| ENB | Enbridge | $39.48 |
| CVX | Chevron | $156.22 |
| PSX | Phillips 66 | $93.40 |
| BKR | Baker Hughes | $27.36 |
| SOI | Solaris Oilfield | $7.59 |
| NOV | NOV. | $15.12 |
Caterpillar (CAT)
Though not a direct player in the oil and natural gas industry, mining equipment manufacturer Caterpillar (NYSE:CAT) easily ranks within the dividend stock picks for the oil price rally list. Caterpillar provides the equipment and services necessary to keep international drilling and production operations running safely and efficiently. While it’s had a rough start to the year – down nearly 11% – shares appear to be stabilizing recently.
Financially, Caterpillar doesn’t offer a remarkable profile. However, its main strength is that it gets the job done reliably and predictably. In particular, it enjoys a trailing-year net margin of 11.53%, ranked above 87.44% of the companies in the heavy construction machinery sector. For passive income, Caterpillar’s forward yield is a relatively modest 2.25%. However, its payout ratio sits at 26.46%, implying confident sustainability. In addition, it commands 30 years of consecutive dividend increases.
Finally, Wall Street analysts peg CAT as a consensus moderate buy. On average, their price target comes out to $239.62, implying over 12% upside potential.
Enbridge (ENB)
A midstream specialist in the hydrocarbon value chain, Enbridge (NYSE:ENB) is one of the dividend stock opportunities from the oil price boom thanks in part to its massive footprint. Transporting crude oil, natural gas, and natural gas liquids, its network of pipelines crosses 17,809 miles (28,661 kilometers) across North America. Since the beginning of this year, ENB gained nearly 2% of its market value.
As with Caterpillar above, Enbridge doesn’t have the most remarkable financial statistics. However, it gets the job done, leveraging a consistently profitable enterprise. Perhaps most notably, Enbridge’s trailing-year operating margin comes in at 16.76%, ranked above 62.67% of the competition.
At the moment, Enbridge’s forward yield stands at 6.66%. Although lofty, investors should also realize that it runs a payout ratio of 119%. Therefore, sustainability may be a concern. Still, ENB may attract attention as one of the dividend stocks to buy as oil prices soar thanks to analysts’ support. Wall Street’s experts peg ENB as a buy with a price target of $45.65 implying 15% upside potential.
Chevron (CVX)
Standing as a member of the oil and gas supermajors, Chevron (NYSE:CVX) needs no introduction. However, those who are seeking dividend stocks to buy as oil prices soar may want to target CVX. To be sure, it’s not a distinct idea nor is it particularly exciting. Also, the value of the security fell nearly 10% since the beginning of this year.
Nevertheless, Chevron benefits from a balanced profile combining capital return potential, passive income, and solid financials. Regarding the latter, the company’s three-year revenue growth rate pings at 18.1%, ranked above 69.07% of its peers. Also, it enjoys a robust balance sheet, with an Altman Z-Score of 4.58 indicating high stability and low bankruptcy risk.
On the passive income front, Chevron’s forward yield is 3.84%, which is a bit lower than the energy sector’s average yield of 4.24%. However, the payout ratio sits at a sustainable 41.38%. Lastly, analysts peg CVX as a consensus moderate buy. Overall, their price target lands at $190, implying 21% upside potential.
Phillips 66 (PSX)
A downstream energy specialist, Phillips 66 (NYSE:PSX) primary claim to fame as a potential target for dividend stocks to buy as oil prices soar comes down to a captive audience. Because of the harsh economics of electric vehicles – namely, that they’re too expensive – gasoline station operators will be relevant for years (if not decades). Therefore, the nearly 7% dip in PSX could be a discounted opportunity.
Financially, Phillips 66 brings a balanced profile to the table. Operationally, its three-year revenue growth rate comes in at 14.9%, above 63.55% of sector peers. Also, with shares trading at a trailing multiple of 3.64, PSX might be modestly undervalued.
For passive income, Phillips 66 carries a forward yield of 4.46%, just slightly higher than the energy sector’s average yield. Still, it features a low payout ratio of 34.14%, which should boost confidence regarding sustainability. Turning to Wall Street, analysts peg PSX as a consensus moderate buy. Their average price target hits $126.57, implying over 34% upside potential.
Baker Hughes (BKR)
Headquartered in Houston, Texas, Baker Hughes (NASDAQ:BKR) bills itself as an energy technology company. It develops and deploys the most advanced solutions to serve energy and industrial companies to enhance efficiency and reliability. As with the other dividend stocks to buy as oil prices soar, it hasn’t had a great start to the year, losing 3%. Still, it’s a promising enterprise, particularly if we encounter some geopolitical hiccups.
To be fair, Baker has been slow on the operational front. In 2020, the company posted revenue of $20.71 billion. It dipped slightly in the following year, posting sales of $20.5 billion. However, in more recent times, Baker has picked up the pace. In the first quarter of 2023, it rang up $5.72 billion, up 18% year-over-year.
According to TipRanks, Baker carries a dividend yield of 2.63%. Its payout ratio is on the high side at 71.65%. Still, what’s attractive here is that analysts peg BKR as a consensus strong buy. Overall, their average price target stands at $37.50, implying over 34% upside potential.
Solaris Oilfield Infrastructure (SOI)
Also based in Houston, Solaris Oilfield Infrastructure (NYSE:SOI) claims to deliver comprehensive, automated systems to optimize its enterprise-level clients’ safety, efficiency, and execution. Since the beginning of this year, SOI slipped almost 16%, which isn’t the most encouraging sign. However, for those that don’t mind speculating on their dividend stocks to buy as oil prices soar, SOI might intrigue the daring.
Financially, Solaris would probably rank middling as best. For example, its three-year revenue growth rate is 8.3%, just a bit better than the oil and gas sector’s median stat of 7.7%. Its net margin is 7.29%, which isn’t bad but not great. As for the passive income, Solaris’ forward yield is 5.62%, above average for the sector. As well, its payout ratio sits at 27%, providing confidence regarding sustainability.
Lastly, analysts peg SOI as a consensus moderate buy. Their average price target lands at $11.83, implying 51% upside potential.
NOV (NOV)
A multinational energy equipment provider, NOV (NYSE:NOV) – formerly known as National Oilwell Varco – serves the oil and gas drilling industry. These services include production operations, oilfield solutions, and supply chain integration initiatives, primarily for upstream (exploration and production) companies. However, NOV represents a risky proposition among dividend stocks to buy as oil prices soar, with shares down 21% year-to-date.
Frankly, circumstances don’t get that much better on the financials. For example, its three-year revenue growth rate sits at 6.1% below zero. Plus, with an Altman Z-Score of 1.78, NOV suffers from questionable fiscal stability and a higher-than-normal risk of bankruptcy. Fundamentally, NOV aligns more heavily toward growth potential, with the company carrying a forward yield of only 1.28%. That said, the payout ratio sits at a lowly 12.08%, with management focusing on making sure shareholders can depend on the passive income.
On a final note, analysts peg NOV as a consensus moderate buy. On average, their price target stands at $23.86, implying over 52% upside potential.
On the date of publication, Josh Enomoto did not have (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.