3 Energy Dividend Stocks That Could Be Gushers in Q4

The unnerving scenes from the Middle East this week have pushed oil prices higher, with November crude futures (CLX24) closing today above $70 for the first time since Sept. 24. At the same time, reports today suggested that the Saudi oil minister may be considering a price war, as he reportedly warned fellow members of OPEC last week that prices could fall as low as $50 per barrel if countries don't adhere to planned production quotas. 

Against this tense macroeconomic backdrop for oil, dividend stocks can offer some refuge. The best dividend stocks offer a stable source of passive income for investors, and are generally companies that have an established track record of earnings growth, established over the course of navigating various different business cycles over the years. 

To find the best energy dividend stocks right now, it's not a bad idea to start with a list of names that are gushing free cash flow. Among those, here are three that analysts agree are worthy of a consensus “Buy” rating. 

#1. Marathon Petroleum

Founded in 1887, Marathon Petroleum (MPC) operates a vast network of refineries, pipelines, terminals, and retail stations across the United States. As one of the largest refiners in the country, MPC is also engaged in refining, marketing and midstream activities. Its market cap currently stands at $58.4 billion.

MPC stock is up 11.5% on a YTD basis, and it offers a dividend yield of 1.99%. Moreover, the company rewards its shareholders through share buybacks, as well. Since May 2021, the company has bought back shares worth a total of $35 billion.

Marathon has delivered steady growth in revenue and earnings over the past 10 years, which have expanded at CAGRs of 4.58% and 16.69%, respectively.

In the most recent second quarter, both revenue and earnings surpassed estimates. Revenues rose by 4.3% from the previous year to $38.36 billion, while EPS declined 22.6% to $4.12 comfortably outpacing the consensus estimate of $3.09.

Production improved in the quarter, with refined product sales volume rising to 3.742 million barrels per day (mbpd) from 3.581 mbpd in the prior year, with capacity utilization of 97% comparing favorably to 93% in the year-ago period.

Operating cash flow was $2.7 billion, and MPC closed the quarter with about $6 billion in cash and short-term investments. The MPLX midstream business has been a key contributor to cash flows, kicking in $550 million during Q2. During the Q2 conference call, UBS analyst Manav Gupta noted that distributions from the midstream business are on pace to cover the full dividend and capex, saying, “Technically, you are a recession proof refiner.”

Overall, analysts are bullish about Marathon Oil, with a consensus “Strong Buy” rating for the stock and a mean target price of $183.88 - indicating an expected upside potential of about 11.2% from current levels. Out of 17 analysts covering the stock, 12 have a “Strong Buy” rating and 5 have a “Hold” rating.

#2. Ovintiv

Founded as the Canadian Oil Company in 1920, Ovintiv(OVV)is an exploration and production company operatingin various regions across the United States and Canada. It primarily focuses on producing natural gas (NGX24), oil, and natural gas liquids (NGLs). The company's market cap currently stands at $10.8 billion.

OVV stock is down 6.1% on a YTD basis, and offers a dividend yield of 2.98%. Ovintiv has been raising dividends consistently for each of the past five years, at a growth rate of more than 27%.

In the second quarter, Ovintiv reported revenues of $2.29 billion, down 9.1% from the prior year, while EPS slipped by 5.2% in the same period to $1.27. On an adjusted basis, OVV earned $1.24 per share, which edged past the consensus estimate. Over the last 10 years, the company has reported revenue and earnings at a CAGR of 5.04% and 19.24%, respectively.

During Q2, the company generated $1.025 million in adjusted cash flow, with cash from operating activities of $1.020 million and free cash flow of $403 million. For the full year, Ovintiv said it expects to generate $1.9 billion of free cash flow, up more than 60% year over year.

Total production in the quarter improved to 593.8 (MBOE/d), marking a YoY growth of 3.6%. The company raised its production guidance for the year to 570,000-580,000 boe/day from the previous forecast of 545,000-575,000 boe/day.

With a diversified asset base in the key oil-producing regions of North America and the adoption of multi-frac technology, management sees improvements in execution and enhanced FCF margin growth. Simulfrac and Trimulfrac are advanced well-completion technologies used by Ovintiv to improve the efficiency and productivity of its drilling operations, and these techniques involve simultaneously fracturing multiple intervals within a single wellbore.

Analysts rate OVV stock a “Moderate Buy” overall, with a mean target price of $57.27. This indicates an upside potential of about 38.8% from current levels. Out of 20 analysts covering the stock, 13 have a “Strong Buy” rating and 7 have a “Hold” rating.

#3. Permian Resources

Founded in 2007, Permian Resources (PR) is one of the largest independent oil and gas producers in the Permian, the most prolific U.S. oil and gas basin. The Texas-based company has a market cap of $10.63 billion.

PR stock is up 3% so far in 2024. The shares also offer a dividend yield of 5.07%. 

Permian's Q2 earnings report went well, with both revenue and earnings beating estimates in the latest quarter. Revenues almost doubled from the previous year to $1.2 billion, as higher oil and NGLs sales drove the overall growth. Adjusted EPS improved by 71.4% in the same period to come in at $0.39.

Net production increased by 104.2% to 30,827 (MBoe), with average daily net production rising by almost the same amount to 338,761 (Boe/d).

During Q2, PR's adjusted free cash flow reached $332.3 million, and management noted that adjusted free cash flow per share is up over 60% since the first quarter of 2023. Net cash from operating activities was $938 million during the quarter, with adjusted operating cash flow at $849 million.

Going forward, the company is looking to continue its strategy of "bolt-on" acquisitions. This strategy is value-accretive for shareholders as they are both larger and contiguous with reduced location costs for the wells involved.

Overall, analysts have an average rating of “Strong Buy” for PR, with a mean target price of $19.61. This suggests an upside potential of about 40% from current levels. Out of 19 analysts covering Permian stock, 16 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 2 have a “Hold” rating.