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The energy sector has developed particularly well in recent years. Many oil and gas companies delivered high returns and generous dividends. Now analysts are increasing their price targets on some of the industry’s biggest names, suggesting there could be further upside to come. But with yields already attractive, is it time for income investors to secure these dividends at current share prices?
Let’s take a closer look at two oil and gas giants that have caught the attention of Wall Street analysts: Exxon Mobil Corp (NYSE:XOM) and Chevron Corp (NYSE:CVX).
Exxon Mobil Corp: Analysts see double-digit growth
Exxon Mobil, the largest US oil company, has been on a tear lately. The company reported strong earnings of $8.2 billion for the first quarter of 2024, driven by robust growth in oil and gas production, particularly in the Permian Basin and Guyana. Exxon also announced a significant new oil discovery in Guyana, further strengthening its long-term growth prospects.
Analysts have noted Exxon’s impressive performance and are increasing their price targets accordingly. As of April 30, 2024, Wells Fargo maintained an Overweight rating on the stock and increased its price target from $138 to $142, representing an upside potential of 19.46% from current levels. TD Cowen also maintained a Buy rating and increased its target to $135 from $128, suggesting a potential return of 13.57%.
Exxon currently offers a dividend yield of 3.18% with an annual dividend rate of $3.80 per share. The company has increased its dividend for 25 consecutive years, earning itself the coveted title of Dividend Aristocrat. Over the past decade, Exxon has increased its dividend at a compound annual growth rate (CAGR) of 3.97%, beating the industry average of 1.28%.
Chevron Corp: Analysts predict return potential of nearly 30%
Not to be outdone, Chevron also delivered impressive first quarter results. The company reported a profit of $5.5 billion, with global production rising 12% from a year ago. Chevron returned $6 billion to shareholders through dividends and share repurchases, marking its eighth consecutive quarter of returns above $5 billion.
Analysts are optimistic about Chevron’s prospects. Wells Fargo maintains its Overweight rating and increases its price target from $198 to $206 on April 30, 2024, implying significant upside potential of 26.22%. HSBC also maintained a Buy rating and increased its target to $178 from $175, suggesting a more modest return of 9.06%.
Chevron has an even higher dividend yield than Exxon at 3.92%, with an annual dividend rate of $6.52 per share. The company has an impressive 36-year streak of consecutive dividend increases and has increased its payout at a 4.41% CAGR over the past 10 years, well above the industry average.
Checkout: Passive income investing is one of the most reliable ways to survive a recession. Therefore, it is not surprising that people resort to high-yield real estate bonds, which have a fixed return of 7.5% to 9%.
To hold on or not to hold on?
While Exxon and Chevron’s consistent dividend growth and attractive yields might entice income investors to lock in these dividends at current stock prices, it’s important to remember that even the best analysts are only right a little more than half of the time. The decision to invest in these oil and gas giants ultimately depends on how well they align with an individual investor’s long-term strategy and risk tolerance.
Alternative passive income games
For investors looking to diversify their income streams beyond traditional dividend stocks, there are some compelling options in real estate:
1. EquityMultiple’s Ascent Income Fund: This fund aims to provide investors with diversified exposure to US commercial real estate loans and to target a net return of 11-13%. The Fund focuses on investing in senior debt securities across diverse geographies, property types and borrowers and seeks to mitigate risk while providing stable returns. Investors can benefit from quarterly income distributions or reinvest dividends to increase returns.
2. Cityfunds Yield Fund: The Cityfunds Yield Fund offers investors a target annual yield (APY) of 8% by investing in a diversified pool of secured real estate loans. With a guaranteed APR of at least 7%, this fund offers an attractive option for income-focused investors looking to gain exposure to the real estate bond market.
The conclusion
While recent analyst upgrades and attractive dividends from Exxon Mobil and Chevron are certainly tempting, income investors should carefully consider their individual goals and risk profiles before making investment decisions. For those looking to diversify beyond traditional dividend stocks, real estate investment opportunities like EquityMultiple’s Ascent Income Fund and Cityfunds Yield Fund offer compelling alternatives for generating passive income.
As always, thorough due diligence and a long-term perspective are essential when navigating the ever-changing landscape of income investing. By staying informed and open to new opportunities, investors can build resilient portfolios that can weather market fluctuations and deliver reliable returns for years to come.
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In this article, analysts increase price targets on these oil and gas stocks. Is it time to lock in the dividend at current prices? originally appeared on Benzinga.com