• Alex Laan

Energy producers offering enticing yields?

Hi guys,

Happy new year to everyone. May 2020 be a year for improved processes and increased risk adjusted returns.

Recently Jesse Felder and others noted how the yield of American listed oil producers are now higher than utilities. The latter always sought after for their (perceived) low risk and attractive yield. Is it time to look deeper into what the energy producers have to offer?

Source: Bloomberg and Jesse Felder

Based on the above, I looked deeper on what a handful of names in Europe have to offer.

First of all, the annual dividend (yield) of the US listed utility ETF is at 2.9% compared to 3.28% the ETF of the biggest energy producers has to offer.

Digging somewhat deeper in Europe and particularly Scandinavia, finding a higher yielding share of a reputable company compared to what the XLE ETF has to offer, is far from impossible.

We could also add such factors as oil price sensitivity, free cash flow, short and long term debt, previous 3-5 year earnings and revenue growth etc for those willing to dig deeper. However, I find the past two weeks very interesting. Oil price has had a dramatic surge in volatility, yet price is lower post Iran / USA tensions. Despite that, a few selected oil producers have higher share prices at end of week. With that in mind, I will emphasize how relative strength vs industry and broad market index help discover the leading names in an industry.

The above chart is individual names relative to the European Stoxx 600 Oil & Gas.

To conclude, finding attractive yield plays within the European Oil & Gas industry is possible with a handful of names even outpacing the industry index with ease. The industry itself is not fairing better than the broad market though, so if one desires good returns with manageable risk one should perhaps look elsewhere or be very selective.

Good luck!

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