Dividend investors looking for shares to consider buying have a lot to think about right now. There are some stocks with attractive yields – and some of them just got even more so.
Stocks with high dividend yields can be great long-term opportunities. But they can also be risky and investors need ot think carefully about which ones are which.
Global oil
On both sides of the Atlantic, shares in oil companies have been among the hardest-hit in the last week. And reciprocal trade tariffs from the US are only part of the reason.
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Source: Trading Economics
Following ‘Liberation Day’, analysts at JP Morgan estimate the chance of a global recession in 2025 to be 60%. This isn’t a positive sign for short-term oil demand.
But this isn’t the only issue. In the last week, eight OPEC+ members reported plans to boost oil production. This should result in 411,000 extra barrels per day in May (rather than 135,000).
Combining increased supply with subdued demand is a formula for lower oil prices. And that’s why energy has been the worst-performing sector in the S&P 500 over the last week.
BP
In the UK, things have been largely similar. BP (LSE:BP) has seen its share price fall 14% in the last week, while the FTSE 100 is down around 7%.
As a result, the stock now has a 6.5% dividend yield, which I think is worth paying attention to. Especially for investors with a positive long-term view of oil.
The situation with BP is complicated. Activist investor Elliott Management is pushing the firm to divest some of its operations including – but not limited to – its renewables division.
I like the strategy, but I’m not sure that now is a good time to be selling wind and solar assets. Renewables have been under pressure recently and this is enough to make me look elsewhere.
Chord
Chord Energy (NASDAQ:CHRD) is a more straightforward organisation. The company’s exclusive focus is on getting oil out of the Williston Basin as cheaply as possible.
Importantly, it’s also intent on returning as much cash as possible to shareholders. As long as its leverage ratio stays below 0.5, the firm plans to return 75% of its free cash flow to investors.
Towards the end of 2024, this ratio was 0.3, but there’s a risk lower oil prices could threaten this position. Even if debt levels stay the same, lower profits could push the ratio higher.
This is something investors should take seriously. But I think Chord’s clear focus on extracting oil and returning cash to shareholders makes it preferable to BP, for me at least.
I’m buying
In the space of about a week, things have changed dramatically for oil companies. Supply is up, demand is down, and crude prices have fallen sharply as a result.
One thing this shows, however, is that things can change suddenly. And the current situation might be about as bad as it gets for oil stocks.
The risk is that things stay this way for some time. But I see discounted prices across the sector as an unusually good buying opportunity.
BP might be a decent stock to consider, but I prefer Chord’s uncomplicated focus on oil and cash flows. So if prices stay where they are, I’ll be adding to my existing investment later this week.
