It’s still a good time to invest in energy stocks. While the price of crude oil has come down from the lofty heights seen last year when West Texas Intermediate (WTI), the U.S. standard benchmark, peaked above $120 a barrel, oil and gas companies are still reaping the benefits of elevated oil prices. Since the start of the year, multiple oil and gas companies around the world have announced record profits. By some estimates, the combined profits of oil and natural gas producers exceeded $200 billion for all of 2022. The good news for investors is that Big Oil is passing those profits onto shareholders in the form of higher dividend payouts and new stock-buyback programs. While the party-like atmosphere has led some politicians to call for a windfall tax on energy companies, there are no indications that will happen anytime soon. So, what are the best energy stocks to buy now? Here are our top seven picks.
Best Energy Stock to Buy Now: Suncor (SU)
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Canadian energy giant Suncor (NYSE:SU) has been generating headlines in recent months as U.S.-based activist investor Elliott Investment Management pushes for change at the Calgary-based company. Most recently, Suncor named Rich Kruger as its new permanent CEO. Kruger, age 63, previously led Imperial Oil (NYSE:IMO) from 2013 until 2019. The previous CEO, Mark Little, resigned at the urging of activist investor Elliott Management last summer following several workplace deaths at the company’s oil and gas sites.
The management shake-up comes as Suncor reported that its fourth-quarter 2022 profit rose 76% to $2.01 billion and announced that it was raising its quarterly dividend by 11% to 38 cents per share. Suncor reported that its earnings amounted to 1.81 Canadian dollars per share, compared to 89 Canadian cents per share a year earlier. The company’s crude oil production totaled 440,000 barrels per day and its refinery utilization rate was a strong 94% in Q4.
SU stock has gained 13% so far this year.
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There’s a reason why famed investor Warren Buffett is the largest individual shareholder in Chevron (NYSE:CVX), with an 8.55% stake in the oil and natural gas giant. Chevron has a strong track record of rewarding shareholders with dividends and stock buybacks, both of which are sought after by Buffett. And Chevron has not disappointed. As the energy company racked up record profits over the past year, it has passed much of the windfall onto its shareholders.
Most recently, Chevron announced that it was raising its dividend payment 6% to $1.51 per share from $1.42 previously beginning with its March 10 distribution date. The company also launched a new $75 billion stock-buyback program, which comes into effect on April 1 of this year and has no expiration date.
The new share repurchase program follows a $25 billion plan that began in 2019. The dividend hike and stock buybacks were made possible by an exceptional year for Chevron in 2022, with its free cash flow topping $12 billion.
CVX stock gained 48% in 2022 as all the major U.S. indices finished the year in the red.
Tourmaline Oil (TRMLF)
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Speaking of dividends, Canada’s Tourmaline Oil (TSE:TOU) has spent the past year raising its regular dividend and making special dividend payments to its shareholders as it has gushed profits. In February, the company paid a special one-time dividend of 2 Canadian dollars per share (US$1.47) to its shareholders. The company also announced special dividend payments in each of the next three quarters. And Tourmaline raised its regular quarterly dividend by 14% to 25 Canadian cents from 22 Canadian cents in the final quarter of 2022.
The latest dividend payouts come after Tourmaline Oil made three special dividend payments during 2022. With oil prices as high as $120 per barrel last year, the company had been gushing profits and passing them along to shareholders.
Earlier this year, the company boosted its 2023 capital spending guidance by 11% to 1.78 billion Canadian dollars, saying that it plans to continue making hay while the sun shines in Canada’s oil patch. Tourmaline Oil’s stock has gained 18% over the past 12 months to reach Cdn$61 per share.
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Looking across the pond, we come to European energy giant Shell (NYSE:SHEL). The company posted a record annual profit of $39.90 billion in 2022 as it took full advantage of elevated crude prices and strong global energy demand. The 2022 earnings beat Shell’s previous record annual profit of $28.4 billion set back in 2008. The 2022 results also more than doubled Shell’s 2021 profit of $19.29 billion.
As with Chevron, Shell was quick to reward shareholders, announcing a $4 billion share repurchase program and a 15% increase of its quarterly dividend.
The stock buybacks and dividend hike were applauded by investors around the world who stuck by the company during the lean times, especially after the energy market crashed in 2020 during the Covid-19 pandemic.
SHEL stock has gained 19% over the past 12 months, including a 10% increase in 2023.
Consol Energy (CEIX)
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Now for a dark-horse candidate. Consol Energy (NYSE:CEIX) is a smaller company that mostly deals in coal. With only a $2 billion market capitalization, Consol Energy is one of the smaller energy companies around. But the company and its stock distinguish themselves in some important ways. Notably, Consol Energy has no debt and is forecasting that its free cash flow will exceed its market cap by the end of this year.
The company’s surplus cash is likely to lead to stock buybacks and could also lead to a boost in the company’s already impressive dividend. CEIX stock currently pays a quarterly dividend of $1.10 per share, which is good for a yield of 7.60%.
Trading at $57 a share, Consol Energy’s stock has risen 85% in the last 12 months. Yet the company’s price-earnings ratio currently stands at a low 4.43. This suggests that the stock is not overvalued despite its big run over the past year.
Kinder Morgan (KMI)
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While not a traditional producer of crude oil and natural gas, Kinder Morgan (NYSE:KMI) has proven itself to be an essential part of the energy industry. That is because Kinder Morgan is the largest energy infrastructure company in North America, operating 83,000 miles of pipelines and 143 terminals throughout the continent. The energy sector in the U.S. and neighboring Canada and Mexico would not function without Kinder Morgan.
KMI stock has not benefitted from the energy boom of the past year in the same way that more traditional oil and gas companies have. In the last 12 months, Kinder Morgan’s share price has dropped 5%.
However, there are still reasons to like the stock. These include a modest P/E ratio of 15 and a dividend yield of 6.4%, which is good for a quarterly payout of 28 cents a share.
With KMI trading close to its 52-week low, now is an opportune time for investors to consider taking a position.
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We end with ExxonMobil (NYSE:XOM). The conglomerate hit a homer with its most recent earnings, announcing a record profit for 2022 of $56 billion. ExxonMobil’s results equaled earnings of about $6.3 million per hour for all of last year and set an all-time high for profits among U.S. energy companies. \
ExxonMobil said that cost cuts it made during the pandemic when crude prices collapsed helped to supercharge its earnings during last year’s recovery.
The company did not forget its shareholders as it pumped out record profits. In 2022, ExxonMobil spent $30 billion on dividends and stock buybacks. The company also spent heavily on developing new oil and gas projects last year, raising its spending on those projects by 37% year-over-year to $22.7 billion.
XOM stock has responded very well to the company’s financial results and the fund that it has returned to its shareholders. Over the last 12 months, its share price has increased 37%. So far in 2023, the stock has gained 1%.
On the date of publication, Joel Baglole 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.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
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