COP vs. XOM

[Kerim]

As I mentioned in another thread, I've been itching to buy some shares lately, and XOM was on the list of candidates that I mentioned. I'd like to increase my exposure to energy companies, and XOM is an extremely reliable dividend growth stock that seems to be fairly valued right now. I don't own any XOM yet, so it would also be nice to diversify a bit. Most of my oil exposure is via COP, which is about 7.5 percent of my portfolio.

So I'm looking at my spreadsheets, toying with buying some XOM, and I notice that COP is better on some important DG metrics.

COP has a MUCH better starting yield,a noticeably lower p/e, and its earnings growth, while not stellar, has edged out XOM. On the other hand, XOM has a lower payout ratio (though COP's is still comfortably in the low 40s), a better dividend growth rate, and a much better established dividend growth streak (though again, I'm comfortable that COP is committed to growing the dividend).

I'm feeling very swayed by the initial yield to just put any more oil/energy money into COP.

So what do you think -- more COP, or establish a position in XOM for diversification?

[NilesMike]

(08-16-2014, 10:41 AM)Kerim Wrote: As I mentioned in another thread, I've been itching to buy some shares lately, and XOM was on the list of candidates that I mentioned. I'd like to increase my exposure to energy companies, and XOM is an extremely reliable dividend growth stock that seems to be fairly valued right now. I don't own any XOM yet, so it would also be nice to diversify a bit. Most of my oil exposure is via COP, which is about 7.5 percent of my portfolio.

So I'm looking at my spreadsheets, toying with buying some XOM, and I notice that COP is better on some important DG metrics.

COP has a MUCH better starting yield,a noticeably lower p/e, and its earnings growth, while not stellar, has edged out XOM. On the other hand, XOM has a lower payout ratio (though COP's is still comfortably in the low 40s), a better dividend growth rate, and a much better established dividend growth streak (though again, I'm comfortable that COP is committed to growing the dividend).

I'm feeling very swayed by the initial yield to just put any more oil/energy money into COP.

So what do you think -- more COP, or establish a position in XOM for diversification?

I recently did the same homework and went with CVX instead. P/E similar to COP, initial yield similar, superior div. growth rate with average payout being better as well. The final tipping point was where the initial yiled ranked historically. I bought CVX well above its' average 5year yield while COP is below its' average.

All 3 are good choices IMO, whichever stock one is most comfortable with.

[Kerim]

(08-16-2014, 06:19 PM)NilesMike Wrote: I recently did the same homework and went with CVX instead. P/E similar to COP, initial yield similar, superior div. growth rate with average payout being better as well. The final tipping point was where the initial yiled ranked historically. I bought CVX well above its' average 5year yield while COP is below its' average.

All 3 are good choices IMO, whichever stock one is most comfortable with.

Thanks NilesMike. I probably should have mentioned that I am not allowed to invest in CVX because of my job, so that one is not even on the table for me, I'm afraid. Too bad, too, because I agree it is a good one!

[Turvok]

That's a conundrum. COP also has the natural gas aspect as well. As you said in your GE post, you're looking for the initial dividend percentage. I think 7.5% is a pretty sizable percentage, but COP is a great stock and I don't think you can go wrong with COP, especially with the pullback it's undergone.

[EricL]

I think KMI represents about the best initial yield plus expected dividend growth in the energy sector right now. It may not have quite the length of track record as an XOM or COP, but the old KMP has an 18 year streak with a 10 year CAGR of the dividend of 7.4%. The combined company the new KMI is projected to pay out $2.00 per share, a nearly 5% yield, with 10% annual increases expected out to 2020.

With the company focusing on the toll road of oil and gas pipelines for the majority of their revenues, the long term agreements they have provide a steady stream of income so there is less volatility than with E&P companies.

That said, to your original question I own COP while I do not own XOM. I like COP's higher focus on North American drilling, which takes some of the risk away from dealing with foreign governments and potential war disruptions. They have also shown much better growth over the last decade and you get to start with a higher initial yield.

Finally, one other oil stock that I own that you could consider is Occidental Petroleum (OXY). They also have a bit higher yield and much higher dividend growth rate, and have nice acreage in the US. They will be splitting off their California portion of the business late 2014/early 2015 and are also looking for buyers for their Middle East assets.

[Kerim]

Thanks very much for the thoughts -- keep em coming!

Eric -- would love to get in on KMI, but that's another one I'm prohibited from buying. My choices in the energy industry are somewhat limited.

[Roadmap2Retire]

Sorry you cant hold KMI in your portfolio, Kerim. Eric hit the nail on the head - KMI represents the best value in the market - and even after the runup, the stock is attractively priced.

I ended up adding to my position after the first day's excitement died earlier in the week....and would love to buy more if I had the cash. One thing to note is that it is a huge natgas play (which I am personally very bullish on) after the integration of EPB in the consolidated company.

[Turvok]

Bit off topic, but with the KMI deal, is there any reason to wait until the merger before buying KMI or since everything is rolling into KMI, I'll be okay?

[CritMass]

Turvok, I have the same question. Holding a 1/4 position in KMP and am wondering if I should buy more KMP, or buy into KMI, or just sit on my hands and watch something play out. I guess this is a good conundrum.

[Roadmap2Retire]

I ended up picking some up last week at $38.50.

Recent Buy - Kinder Morgan Inc (KMI)

I'll probably buy more after consolidation or if I see some weakness