Warren Buffett continues to prop up the big oil truck.  Lock in energy yields of up to 13.3% for some fat income to boot

Warren Buffett continues to prop up the big oil truck.  Lock in energy yields of up to 13.3% for some fat income to boot

Warren Buffett continues to prop up the big oil truck. Lock in energy yields of up to 13.3% for some fat income to boot

Energy was the best performing sector in the S&P 500 last year. And that momentum carried over into 2022.

Year-to-date, the Energy Select Sector SPDR Fund (XLE) is up 37%, in stark contrast to the S&P 500’s 17% decline.

One investment legend benefited well from the energy boom: Warren Buffett.

Buffett’s Berkshire Hathaway backed oil and gas giant Occidental Petroleum’s ( OXY ) truck following the company’s late February earnings conference call. Buffett read the transcript and liked what he saw.

“We started buying on Monday and bought everything we could,” he told CNBC.

Later, Buffett bought more – a lot more.

According to the latest SEC filing, Berkshire now owns 188.4 million shares of OXY, worth a whopping $14 billion. That makes OXY Buffett’s sixth-largest holding.

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Bet from 2019

In 2019, Berkshire spent $10 billion on Occidental preferred stock to help the company buy its fellow Houston-based energy company Anadarko Petroleum.

Occidental pays an 8% annual dividend on these preferred shares, providing Berkshire with $200 million each quarter dividend income.

The agreement also gives Berkshire warrants to purchase 83.9 million shares of Occidental common stock at an exercise price of $59.62.

“It’s also a bet on the fact that the Permian Basin is what it’s believed to be,” Buffett told CNBC in 2019, adding that “If [oil] go up a lot, make a lot of money.’

Here are two more Permian Basin energy plays to consider—they also pay solid dividends.

Plains All American Pipeline (PAA)

With strong oil and gas prices, producers are making money hand over fist. But when it comes to returning money to investors, mid-sized operators also deserve a look.

See Plains All American Pipeline, a master limited partnership with an extensive network of gathering and transportation pipeline systems. The partnership says it aims to “increase its distribution to unitholders over time through a combination of organic and acquisition-driven growth.”

PAA’s assets are strategically located, with critical infrastructure to gather and export crude oil from the Permian Basin. In the second quarter, the partnership completed the definitive acquisition of the remaining 50% of the Advantage JV pipeline for $42 million Permian Basin.

Earlier this year, management raised PAA’s quarterly distribution by 21% to $0.2175 per unit. At the current unit price, the shares yield a generous 7.5%.

While the broad market is deep in the red year-to-date, PAA is up 25% in 2022.

Stifel analyst Selman Akyol sees even better days ahead for the midstream partnership. He recently upgraded PAA from “hold” to “buy” and raised his price target to $16 — suggesting a potential upside of 38% from current levels.

Pioneer Natural Resources (PXD)

Pioneer Natural Resources is an independent oil and gas exploration and production company with operations in the Midland Basin, Permian Subbasin.

Thanks to the strong rise in oil and gas prices this year, the company has received a lot of attention from investors, with shares up 37% year to date.

But the sheer size of Pioneer’s shareholder payout makes it stand out.

The company’s board recently declared a cash dividend of $8.57 per share for the third quarter. On an annualized basis, this means a return of 13.8%

Note, however, that Pioneer has a base plus variable dividend policy. Its newly declared payout includes a $1.10 basic quarterly dividend and a $7.47 variable dividend.

In other words, payouts aren’t set in stone. But if the energy commodity market remains strong, the company is likely to continue to distribute huge dividends.

Mizuho Securities analyst Vincent Lovaglio has a “buy” rating on Pioneer and a $316 price target — about 28% above today’s share price.

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This article provides information only and should not be construed as advice. Provided without any warranty.

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