It’s helpful to reflect on history and learn from it. So that next time when a similar situation occurs, investors can be better equipped to make a more suitable decision for their own portfolios.
Here’s what I learned from the 2014 oil downturn.
It has been a difficult time for investors who invested in energy stocks right before the WTI oil price fell from over US$100 to as low as US$30 and stabilizing in the US$50 range.
Large Integrated Energy Companies
Exxon Mobil Corporation (NYSE:XOM) fell about 27% from US$100 in 2014 to the 2015 low of US$73. Buying in the low would have pocketed you a 23% gain by now while receiving a 4% dividend yield.
The company also stayed on schedule to raise its dividend. Even though it was only a raise of 2.7%, it still showed Exxon’s commitment to its dividend increases. It also was a proof that it had a stronger balance sheet, as other energy companies froze or even cut their dividends.
In early April, Morningstar lowered Exxon Mobil’s economic moat rating from Wide to Narrow due to low commodity prices, which are having an impact on the highest-quality integrated firm. Imagine the impact they’re having on other commodity price sensitive energy companies.
Chevron Corporation (NYSE:CVX) fell about 36% from US$123 in 2014 to the 2015 low of US$78. Buying in the low would have pocketed you a 51% gain by now while receiving a nearly 5.5% dividend yield.
Buying Chevron before the downturn (compared to Exxon Mobil) would have been a tougher investment. Other than falling harder, it also froze its dividend during that time. After all, dividend freezes sometimes are the beginning of dividend cuts.
However, notice that compared to the lows of Exxon Mobil, Chevron’s rebound came back stronger. So, investors who took on the greater risk…
Unfortunately, I have maxed out the number of words I can include in this (largely) excerpt from my Seeking Alpha article. To learn about the third company with better dividend growth and a more stable share price, check out my full article free at: Reflecting On The Oil Downturn From 2014
If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.Disclosure: At the time of writing, the author owns shares in CVX.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
Get Exclusive Articles from me on Seeking Alpha
- Access my portfolio of high-quality U.S. and Canadian dividend stocks.
- Real-time updates of when I buy or sell from this portfolio.
- Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.