Is it a good time to get into dividend paying oil companies?

[nooby_mcnoob]

This may be relevant information for you.

https://insight.factset.com/as-pric...sfZrrtmxTfp_yEnZqyqS1Kl3mdJ01Q&_hsmi=67804076
AS PRICE OF OIL FALLS, ARE ANALYSTS TOO OPTIMISTIC ON ENERGY EARNINGS FOR 2019?
COMPANIES AND EARNINGS

By John Butters | November 26, 2018

As of today, the Energy sector is projected to report the highest earnings growth of all 11 sectors in the S&P 500 in 2019 at 24.3%. This sector also currently has the highest percentage of Buy ratings (63%) of all 11 sectors in the index and is projected to see the largest increase in price (+28.9%) over the next 12 months (based on the bottom-up target price). Based on these estimates, industry analysts are clearly optimistic on the Energy sector.

The forward 12-month EPS estimate for the S&P 500 Energy sector has increased by 6.5% since September 30, which is the largest increase of all 11 sectors in the S&P 500. However, it should be noted that forward earnings estimates for the Energy sector and the price of oil are highly correlated. Over the past 20 years, the correlation coefficient between the daily forward 12-month EPS estimate for the Energy sector and the daily price of oil (WTI) is 0.92

View attachment 195039

That is an interesting chart. It doesn't make sense for the forward EPS and price of oil to be so far out of whack, so it may be a good idea to just keep an eye for now.

 

[srinir]

That is an interesting chart. It doesn't make sense for the forward EPS and price of oil to be so far out of whack, so it may be a good idea to just keep an eye for now.

Either forward EPS has to come down or Price of Oil has to rally

 

[murray t turtle]

I'm willing to take a little bit of a hit (50%) if it's similar to 2008, but I don't think it will be. I think it will be a slow economic decline at which point the dividends will cushion the blow a bit. I haven't heard or seen of any major 2008-style catalyst unless... unless... The US cannot get enough people to buy the bonds in a couple of years? That would be exciting.

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Fundamentals look bullish for stocks-- except rising FED rates, rising yields, old age in bull market+ 200 dma. And Fidelity ContrafFund again noted risk of S&P downgrade of US debt + more risk could be refinance risk.
And early NOV i mentioned strong seasonals, 1st quarter, last quarter which, in past, favored bull//uptrend; but not this year, too late in the year. BUT with dividends SPY,QQQ = still positive/UP 2018-not a good uptrend.Im still bullish on IWM-but that smallcap ETF is down for year.................................................................................................................................

 

[Sig]

Many of my children's elite school friends' parents are now into hybrid but few have gone full electric except for the over-indebted, low testosterone people who have Teslas.

Oil price is pummelling related stocks, Trump is putting pressure on allies to reduce oil prices, but just like other government interventions, it can't last indefinitely.

Do I know the difference between WTI crude and Brent crude? No. But ~45% of the US use of oil is for transportation. Even if it is going to 0 in 30 years, that's still a long ass time to pay dividends.

Thoughts?

It's worth stopping to think about what "dividend paying stock" means. A stock that pays a $1.00 dividend is worth exactly $1.00 less the day it goes ex. If you had two identical companies, one that paid dividends and one that didn't, you'd have the same value at the end of a year with the dividends plus stock company as the all stock company. There's no "cushion" from dividends, a company that's losing $X per year is going to go down regardless of what they pay in dividends the same as one that doesn't. It's a common misconception that there's some kind of magic "cushion" from dividends that just doesn't exist.
There are reasons to invest in a dividend yielding company, just not any you've articulated in this thread. If you would rather invest in a company that believes that investing in their own company will yield inferior returns to what their investors could earn on their own then you would want to choose a dividend yielding company. That sounds pejorative, but it might actually match your thesis. If you want an oil company that's just going to milk what they have but not waste any investment in new exploration or development because they see no future there and you agree with that thesis, then you'd choose a dividend paying oil company over one that didn't pay dividends. A great example of this was when Sprint put their high margin but dying local exchange business into a spin-off (Embarq) that was designed to pay high yields while it slowly died and the high growth wireless business remained with Sprint.

 

[nooby_mcnoob]

It's worth stopping to think about what "dividend paying stock" means. A stock that pays a $1.00 dividend is worth exactly $1.00 less the day it goes ex. If you had two identical companies, one that paid dividends and one that didn't, you'd have the same value at the end of a year with the dividends plus stock company as the all stock company. There's no "cushion" from dividends, a company that's losing $X per year is going to go down regardless of what they pay in dividends the same as one that doesn't. It's a common misconception that there's some kind of magic "cushion" from dividends that just doesn't exist.
There are reasons to invest in a dividend yielding company, just not any you've articulated in this thread. If you would rather invest in a company that believes that investing in their own company will yield inferior returns to what their investors could earn on their own then you would want to choose a dividend yielding company. That sounds pejorative, but it might actually match your thesis. If you want an oil company that's just going to milk what they have but not waste any investment in new exploration or development because they see no future there and you agree with that thesis, then you'd choose a dividend paying oil company over one that didn't pay dividends. A great example of this was when Sprint put their high margin but dying local exchange business into a spin-off (Embarq) that was designed to pay high yields while it slowly died and the high growth wireless business remained with Sprint.

Well that's funny because that's exactly what I said originally. I don't look at dividend stocks for capital gains or growth. Generally if they do or would keep pace with inflation.