If you’re looking to invest in oil stocks, you should carefully consider these two statements. First, as of June 1, 2021, the price of brent crude is up 37% for the year and is now over $70 a barrel. Second, according to the International Energy Administration (IEA), the share of renewable energy sources in the global energy mix may reach 36% in 2040. That’s a 157% increase from the 19% share renewables had in 2019.
On the surface, these two statements seem to contradict each other. And it is becoming increasingly difficult for our society to process two opposing statements and realize that each may be true. But if you’re going to invest in the oil sector, it’s critical that you reconcile these statements.
The reality of our energy future in the near term will require a “both/and” approach. Even the largest supporter of climate change must admit that fossil fuels aren’t going away anytime soon. That’s being seen in the economic recovery that’s underway. There is demand for energy that, at the present time, renewable energy is not capable of meeting by itself.
Another example of this is found in the electric vehicle (EV) sector. Technology is making an EV future more likely, but there is a significant infrastructure that must be built out before this future becomes a reality. Until then, the internal combustion engine isn’t becoming a museum piece.
As it relates to oil stocks, the best options at the moment are likely to be the integrated energy companies that are adopting this “both/and” philosophy. Here are three such stocks to watch.
Royal Dutch Shell (RDS.A)
At one point this year, Royal Dutch Shell (NYSE:RDS.A) stock was up 23.5%. It has since fallen back and is currently sitting on a 9% gain for the year. But considering the problems in the oil sector due to the pandemic, that’s a gain that would appeal to most investors. Through its Renewables and Energy Soultions Division, Royal Dutch Shell is investing in wind and solar. Plus, it has a stake in the EV charging arena as well as the emerging use of hydrogen as a clean energy source. The division also includes an interconnected power business that seeks to provide electricity to millions of homes, companies, and businesses.
After slashing its dividend at the onset of the global pandemic, Shell has already raised the dividend by seven cents. And management has stated that it has a goal of increasing the dividend by at least 4% per year. While its current yield of around 3% is below industry peers that did not institute a dividend cut, Shell’s dividend still outperforms the S&P 500 average yield which is around 1.5%.
BP Plc (BP)
Another of the integrated energy companies to pay close attention to is BP Plc (NYSE:BP). Through its Reimaging Energy initiative, the company has plans to be a net zero company on or before 2050. However, as the company’s website points out, in order to achieve these goals it will be reinvesting the revenue it receives from its hydrocarbon (I.e. fossil fuels) business.
I don’t say that to be cynical, but rather to reinforce the point I made in the introduction. Getting to a renewable energy future tomorrow will require the use of fossil fuels today.
Like Royal Dutch Shell, BP cut its dividend by 50% (from 10 cents to 5 cents) during the pandemic. They have not yet raised the dividend, but still offer an attractive yield of 4.9% (as of this writing). BP stock is up 30% in 2021.
Total SE (TOT)
Headquartered in Paris, Total SE (NYSE:TOT) stands to be one of the largest beneficiaries of the push towards reopening Europe. In May, the European Union announced that under certain conditions it will allow fully vaccinated Americans to return to the continent. And the EU also set a July 1 deadline for the creation of vaccine passports that will allow vaccinated Europeans to travel freely on the continent.
All of this works to the advantage of Total which also has a vast renewable energy initiative in place. Like BP, Total plans on being a net zero company by 2050. TOT stock is sitting on a gain of over 12.5% so far in 2021.
Before you consider Royal Dutch Shell, you'll want to hear this.
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