Top 3 Oil Shares to Secure Before 2024 Wraps Up
Top 3 Oil Shares to Secure Before 2024 Wraps Up
In 2024, oil prices experienced significant fluctuations, reaching a high of over $85 per barrel at one point, before eventually dropping below $70 a barrel by year's end, decreasing by more than 5% overall. As we approach 2025, three oil stocks that have caught the attention of Fool.com contributors are: TotalEnergies (TTE), ConocoPhillips (COP), and Devon Energy (DVN). Here's why they consider these stocks as their top choices for 2025.
TotalEnergies is embracing the future
Reuben Gregg Brewer (TotalEnergies): If you're seeking oil exposure while also wanting to hedge your bets in light of the ongoing shift towards renewable energy, TotalEnergies may be an attractive option. Among its closest peers, it is the only one that has both invested in clean energy and followed through on its commitment. Some of its competitors, such as BP and Shell, have scaled back their clean energy plans.
Through the first three quarters of 2024, the adjusted operating income for TotalEnergies' integrated power division, which focuses on clean energy and electricity, rose by 21% compared to the previous year. This division now contributes approximately 10% of the total adjusted operating income, an increase from around 7% in the same period of 2023.
The 21% year-over-year growth is directly related to TotalEnergies' ongoing investments in its clean energy initiatives. Notably, the company has managed this shift without cutting its dividend, unlike BP and Shell, which both reduced their dividends as part of their moving towards clean energy. While companies like ExxonMobil and Chevron have maintained strong dividend records, neither has made a significant commitment to clean energy.
TotalEnergies' current dividend yield of 5.7% is among the highest in its peer group. This yield has even increased substantially in the past year due to the weakening energy market. Although this situation is not ideal, it usually means attractive prices for investors seeking dividend yields.
Anticipated benefits from acquisitions in 2025
Matt DiLallo (ConocoPhillips): ConocoPhillips completed its $22.5 billion acquisition of Marathon Oil at the end of November 2024. The company expects immediate benefits in terms of earnings, cash flows, and return on capital per share as a result of this deal. In response, it recently enhanced its quarterly dividend by 34%.
In addition, ConocoPhillips expects to generate at least $500 million in annual cost and capital savings during the first full year of the acquisition. It has since raised this target to over $1 billion in the following year.
These developments, along with ConocoPhillips' strong core business, should drive higher free cash flow in the coming years, as long as oil prices remain favorable. The company is confident that it can deliver dividend growth within the top 25% of S&P 500 companies in the near future.
Furthermore, ConocoPhillips plans to boost its annual share repurchase rate from $5 billion to $7 billion, with the goal of buying back over $20 billion in stock within the first three years of the Marathon acquisition.
This combination of cash flow growth and dividend increases should contribute to strong total returns in 2025 for ConocoPhillips. Although oil prices are always a consideration when investing in oil stocks, the Marathon deal has added over 2 billion barrels of resources with an average cost of supply below $30 per barrel. This advantage should enable the company to generate a significant amount of cash, even if oil prices fall.
Transforming potential for a rebound in 2025
Neha Chamaria (Devon Energy): Devon Energy has experienced significant losses in 2024, with its stock falling nearly 23%. Investors are disappointed as this stock was popular for its income potential in recent years, but the dividends have been declining.
Devon pays both a fixed dividend and a variable dividend, depending on the excess cash generated in a quarter. However, it suspended the variable dividend in the third quarter of 2024. Instead, it decided to repay part of its debt and repurchase shares. Management believes that Devon Energy stock is currently undervalued, given its recent decline.
I do not believe that investors should ignore this stock, as the company's efforts to boost its cash flows and pay down debt are expected to positively impact its stock price in 2025 and beyond.
Devon Energy's debt has increased due to its acquisition of Grayson Mill Energy. However, it expects to eliminate debt worth $2.5 billion over the next couple of years. Additionally, management remains committed to paying a fixed dividend, with plans for an increase in the near future.
Devon keeps churning out substantial earnings, driven by increased output and its latest merger. In Q3, Devon raked in an impressive $786 million in unrestricted cash flow (UCF), marking a significant jump of over 30% compared to the previous quarter. Approximately 55% of this UCF was handed back to investors as dividends and stock repurchases.
Given Devon's escalating production, propelled by acquisitions, and its earnest endeavor to reinforce its financial stability, the stock appears to be an attractive investment opportunity at present.
After discussing the potential of TotalEnergies and ConocoPhillips, it's worth considering Devon Energy as well, especially for investors seeking opportunities in the finance and investing sphere. Devon Energy's focus on boosting cash flows and paying down debt has the potential to positively impact its stock price in 2025 and beyond, as mentioned by Neha Chamara.
Investing in Devon Energy could provide a good return, considering its increasing production and recent merger, which led to an impressive $786 million in unrestricted cash flow in Q3, a significant jump compared to the previous quarter. This cash flow was largely returned to investors, highlighting Devon's commitment to sharing profits with its stakeholders.