ExxonMobil, Chevron, and BP Rallied by as Much as 25% in November

November was a very good month for beleaguered oil majors. Here's what drove the advance and why it matters.

What happened

Shares of U.S. integrated energy giant ExxonMobil (NYSE:XOM) rose nearly 17% in November according to data from S&P Global Market Intelligence. That huge price gain, however, was notably less than what the shares of U.S. peer Chevron (NYSE:CVX) achieved, with a huge 25% advance. And Chevron's gain was edged out by the United Kingdom's BP (NYSE:BP), which saw a 26% rally during the month.

So what

The big energy story in November wasn't really about oil, per se, but about the expectation that the world will move beyond the global coronavirus pandemic. Upbeat trial results from three separate vaccines were released, including offerings from Pfizer and BioNTech, AstraZeneca, and Moderna. Although there are more hurdles to overcome before any of these vaccines are approved and, more importantly, widely available, the results buoyed the mood on Wall Street.

That was particularly true for the energy sector, which is suffering through a material supply/demand imbalance. The dislocation has been driven largely by the steep drop in demand that resulted from government efforts to slow the spread of the coronavirus by effectively shutting down vast swaths of the global economy. That pushed oil prices lower earlier in the year, including a brief moment in time when key U.S. oil benchmark West Texas Intermediate fell below zero. Although there were technical reasons for that drop, it shows how bad the situation has been in the oil patch.

So when positive vaccine news started to show up investors started to get upbeat rather quickly, pushing the shares of Exxon, Chevron, and BP higher. The obvious hope is that energy demand will increase as the world moves past the coronavirus pandemic and that will, in turn, help to rebalance the supply/demand equation, which would likely mean higher prices for oil and natural gas. Although we are still a long way from that outcome, Wall Street tends to be forward-looking and has started to price material improvement into the stocks. 

The interesting thing was the difference in the price gains among these three industry giants. Exxon, which saw the weakest advance, is facing the most difficult task in some ways. Indeed, it is trying to invest to grow its production and sustain its dividend in a weak oil price environment, two desires that require huge sums of money that it just doesn't have at its disposal right now. Investors are worried that it won't be able to achieve both ends, which could lead to a dividend cut. Capital spending, notably, has already been sharply curtailed and debt levels have increased notably so far in 2020.

At the other end of the spectrum is Chevron, which is also sticking largely to its oil focus. This energy company, however, has been benefiting from past spending and hasn't needed to add as much leverage to its balance sheet to sustain itself through this industry downturn. It is, basically, in better shape than many of its peers. Without the huge spending needs that Exxon is facing, an upturn in the energy sector would likely result in a quicker return of positive performance. 

BP, meanwhile, has charted an entirely different path, recently announcing plans to shift toward clean energy. That decision came with a dividend cut. Higher oil prices would make its efforts to shift business models that much easier since the cash-cow energy business would produce more cash flow it can use to fund the transition. 

Now what

The interesting thing about the advances here is that Exxon, Chevron, and BP all ended the month well off of their monthly highs. That suggests that there is a lot of emotion involved in the price moves, which is hardly shocking on Wall Street. However, it points out that this sector remains volatile and the path to higher oil prices is still likely to be long. Investors looking at the sector should be prepared for more ups and downs before there is a sustained improvement. As a practical matter, even after a vaccine is approved, it will likely be months or even quarters before it is widely distributed. Thus, moving past the coronavirus pandemic is still something that's in the distant future right now.

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2 FTSE 100 dividend growth stocks I’d buy today for a rising passive income

The FTSE 100 is full of stocks with the potential to create a considerable amount of wealth for shareholders. However, some of these companies are much more attractive than others. Here are two FTSE 100 dividend stocks that stand out as some of the index’s top defensive plays.

Reckitt Benckiser Group

Reckitt Benckiser (LSE: RB) has run into some problems over the past few years, and investors have been quick to turn their backs on the business. In 2016, the market was willing to pay a price-to-earnings (P/E) ratio of 29 to own Reckitt’s shares. At the time of writing, the stock is trading at P/E of only 19.9.

Despite this performance, the outlook for the owner of consumer goods brands such as Durex, Mucinex, Scholl, Strepsils and Cillit Bang is bright.

While the company’s stock might have come under pressure since 2016, earnings have remained relatively constant. Meanwhile, the top line has only increased. Therefore, fundamentally, the business is stronger today than it was three years ago, contrary to what the market would have you believe.

At the same time, Reckitt’s dividend to investors has continued to increase. The stock currently supports a dividend yield of 2.6%. The payout is covered nearly twice by earnings per share, so there’s plenty of headroom for further growth as well. As such, now could be an excellent time to snap up shares in this consumer goods giant at a discount price.

Over the long term, demand for Reckitt’s products should only grow in line with the world’s population, as the need for cleaning products and consumer healthcare products is only going to grow. This should enable the company to maintain its dividend growth track record for many years to come. Over the past six years, the company has increased its dividend at an average rate of 5% per annum.

Unilever

Unilever (LSE: ULVR) has many similar qualities. Like Reckitt, it owns some of the world’s largest consumer goods brands, the demand for which should only increase over the long run.

The company’s brands are some of the most respected and recognised in the world, such as Ben & Jerry’s ice cream. That said, not all of the group’s brands are performing to expectations. As a result, management is planning to offload underperforming businesses, such as its tea division.

The company is reportedly seeking a buyer for this business, and if its last disposal is anything to go by, management will use the proceeds to buy-back shares and fund additional acquisitions. This should only bolster Unilever’s growth case.

The shares are a bit more expensive than Reckitt’s, but not by much. The stock is currently trading at P/E of 20. On top of this, shares in the consumer goods giant support a dividend yield of 3.2%.

The payout has increased at an average rate of 8% per annum for the past decade. With more deals on the horizon, it would appear this trend can continue.

Disclaimer: Any information on this channel is not to be taken as financial advice. The opinions expressed on this channel are not necessarily the opinions of the host. i am not a financial adviser and if you are seeking financial advice. please consult a professional. also any research done by myself or others used in or on this channel may or may not be accurate. this also extends to the opinions of the host and any guests. all material on and in this channel is for education and entertainment purposes only and i can not confirm or deny any of this.

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I’d hold FTSE 100 dividend stock Vodafone

Favourite Vodafone (LSE: VOD) might finally be ready to recover. Based on the steady-as-she-goes performance of the share price since then, it would seem I wasn’t alone in thinking this.  

Notwithstanding the potential for any macro issues to upset the markets, today’s trading update leads me to think recent momentum should continue over 2020.

“Good progress”

Group revenue rose 6.8% to €11.8bn over the three months to the end of 2019 thanks to a stellar performance in what remains a “challenging” European market (up 10.1% to a little under €9bn). That said, revenue from elsewhere declined 2.7% to €2.5bn.

Based on this performance, Vodafone chose to reiterate its guidance of adjusted earnings of €14.8bn-€15bn, and free cash flow of around €5.4bn for the full year.

Away from the numbers, the company also reported making “good progress” on its strategic priorities over the period, including the appointment of a senior management team for its soon-to-be-listed towers business (European TowerCo). CEO Nick Read hinted that shares of this spin-off should hit the market in “early 2021.“

Solid ‘hold’

Vodafone’s shares were up slightly this morning, suggesting investors were satisfied with what the company had managed to achieve. Then again, most aren’t invested for capital gains — it’s the dividends they’re after.

Assuming it returns the 7.9p per share currently penciled in by analysts, Vodafone yields 5.2% at its current price — far more than the 1.3% you’d receive from even the highest-paying Cash ISA.

Taking this, today’s update, and the fact that the £40bn-cap is finally trying to tackle its serious debt burden by selling assets into account, I think the stock now looks a solid ‘hold’ for those looking to generate a second income stream from their portfolio.

Disclaimer: Any information on this channel is not to be taken as financial advice. The opinions expressed on this channel are not necessarily the opinions of the host. i am not a financial adviser and if you are seeking financial advice. please consult a professional. also any research done by myself or others used in or on this channel may or may not be accurate. this also extends to the opinions of the host and any guests. all material on and in this channel is for education and entertainment purposes only and i can not confirm or deny any of this.

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Big Tobacco’s Future Is Now

Cars and cigarettes have at least one thing in common these days: They are both being disrupted by more modern alternatives. So Stefan Bomhard, the chief executive officer of car dealer Inchcape Plc, should have some idea of what he’ll face when he takes the reins at U.K. cigarette maker Imperial Brands Plc.

It isn’t easy to find executives willing to move to the much-aligned tobacco industry. But Bomhard looks a good  CEO choice for Imperial, which sells Lambert & Butler cigarettes and Blu vapes. The company had decided to part ways with Alison Cooper in October, a week after a profit warning. She will now step down as with immediate effect.

Bomhard did a solid job at Inchcape. While the shares are down about 18% since he became CEO in April 2015, underperforming the FTSE All-Share Index, conditions in car dealing haven’t been easy since Britain voted to leave the European Union and consumer confidence crumbled. It’s still a much better performance than the FTSE All-Share General Retailers Index.

The downside is that Bomhard doesn’t have any tobacco experience. But this is less of an issue than it would be in, say, general retailing. Imperial will have plenty of executives with many years’ worth of knowledge of the traditional cigarette business, still the biggest and most profitable part of the group. And he should be able to pull on his prior experience with big global brands in the race to grab market share for Imperial’s new products, whatever they may be.

The new chief executive spent his career in consumer goods before joining Inchcape, with roles at spirits company Bicardi, chocolate and candy maker Cadbury, and consumer-goods giant Unilever. That should put him in good stead as Imperial attempts to pivot to alternatives to traditional cigarettes, which could in turn, pave the way for it to diversify into dispensing other adult, highly regulated products, such as cannabis.

When Bomhard takes up the role at a yet to be determined date, his first task will be to get to grips with the crisis in the U.S. vaping industry. The company is evaluating the impact of the recent Food and Drug Administration ban on flavors aside from menthol and tobacco for pod-based electronic cigarettes, the type it makes.

Then Bomhard will have to work quickly to decide where best to focus Imperial’s attention, and investment. Although the group has strong positions in vaping and oral nicotine, it only entered the heat-not-burn market relatively recently. He must decide whether to expand in this category, which has not been drawn into the crisis in the U.S. vaping industry.

He could also look at reshaping other aspects of Imperial’s business, including traditional cigarettes. The company is already seeking to raise up to 2 billion pounds ($2.6 billion) through disposals, including a sale of its premium cigar business. But he could go further, say selling off parts of the portfolio in Asia and Africa, and returning the proceeds to shareholders, or investing more in tobacco alternatives.

Either way, Bomhard must take decisive action. Shares in Imperial have fallen more than 20% over the past year, and they trade at a 40% discount to Bloomberg Intelligence’s global tobacco manufacturing valuation peer group. The company even lags Altria Group Inc., which is reeling from its disastrous investment in vaping company Juul Labs Inc.

Imperial has long been seen as an acquisition target, with Japan Tobacco Inc. tipped as the most obvious contender. Another possibility would be for Japan Tobacco and British American Tobacco Plc to carve up Imperial’s empire between them along geographical lines. So if Bomhard doesn’t light up the Imperial share price, a bigger rival just might.

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Approaching retirement? I’d buy FTSE 100 shares for dividend income

The shares I’d consider

If you’re new to investing, you could buy individual stocks that are suited to novices, or make it easy and buy into a FTSE 100 tracker. Another option could be to invest in low-cost exchange-traded funds (ETFs). For example, if you’re interested in dividend stocks, then the iShares UK Dividend UCITS ETF may be one to consider.

With that in mind, here are several large-cap shares I’m watching right now. I’d be willing to invest in them in 2020, especially if there’s any dip in their share prices. I’d like to buy these high-quality and dividend-paying businesses when they trade on low valuations and keep them in my portfolio for many years. Just check out their yields, price-to-earnings (P/E) and price-to-book (P/B) ratios.

• Aviva – dividend yield 7.5%, forward P/E 6.5, P/B 0.88
• Barratt Developments – dividend yield 3.6%, forward P/E 11.1, P/B 1.66
• Glencore – dividend yield 6.9%, forward P/E 10.7, P/B 0.9
• BT – dividend yield 8.9%, forward P/E 6.9, P/B 1.64
• Imperial Brands – dividend yield 10.7%, forward P/E 7.2, P/B 3.69
• Lloyds Banking Group – dividend yield 5.5%, forward P/E 8.1, P/B 0.83
• WPP – dividend yield 6.1%, forward P/E 10.5, P/B 1.27

As always, these aren’t formal recommendations. but they could be a starting point for more research. 

Finally, if you’re unsure about which type of assets may suit your needs, you may want to talk to a financial adviser before moving forward with a specific type of investment.

Disclaimer: Any information on this channel is not to be taken as financial advice. The opinions expressed on this channel are not necessarily the opinions of the host. i am not a financial adviser and if you are seeking financial advice. please consult a professional. also any research done by myself or others used in or on this channel may or may not be accurate. this also extends to the opinions of the host and any guests. all material on and in this channel is for education and entertainment purposes only and i can not confirm or deny any of this.

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Forget the top Cash ISA rate. I’d pocket over 5% from 25+ FTSE 100 stocks

With interest rates expected to fall in 2020, the challenge of beating inflation through a Cash ISA could become more difficult. Over time, a negative real-terms return on your capital will lead to reduced spending power, which could hurt your long-term financial prospects.

As such, obtaining an inflation-beating income return from FTSE 100 shares could be a good idea. At the present time, around 25 of the index’s members offer a dividend yield which is in excess of 5%. Therefore, building a portfolio of income shares may prove to be more straightforward than many investors realise. It could boost your financial future at a time when the prospects for savers are relatively downbeat.

Savings challenges

Holding your spare capital in a savings account or a Cash ISA has historically failed to match the gains on the FTSE 100. The index has recorded an annualised total return of 9% since its inception in 1984. In that time, the rate of interest on cash savings has fluctuated significantly and now stands at little more than 1%.

Due to low levels of inflation and an uncertain outlook for the UK economy as Brexit is delivered, a loose monetary policy looks set to stay in place over the next few years. This means that there is unlikely to be an improving outlook for savers, and they could find that amounts paid into a Cash ISA today can purchase fewer goods and services in the coming years.

Building a FTSE 100 income portfolio

Paying money into a Cash ISA is a simple and uncomplicated process. This is part of its appeal for many people, with it requiring little effort to administer.

Investing in the stock market can also be a straightforward process which requires far less effort than many people realise. For example, opening a Stocks and Shares ISA can be completed online in a matter of minutes. Similarly, building a portfolio of FTSE 100 shares can be a worthwhile process due to the potential returns that are on offer.

Long-term potential

While the FTSE 100 carries greater short-term risk than holding a Cash ISA, its track record shows that it offers the potential for greater returns in the long run. Since a large portion of its historic returns have been derived from dividends, focusing your capital on income stocks could be a sound move. Furthermore, many large-cap shares have the potential to raise their dividends over the coming years to boost your income return.

Since the FTSE 100 is an international index that derives the majority of its income from abroad, it offers a significant amount of diversity. This could reduce risk and also lead to higher long-term returns as emerging economies look set to produce a relatively high rate of growth. As such, switching from a Cash ISA to the 5%+ income returns on offer in the FTSE 100 could be a shrewd move.

Disclaimer: Any information on this channel is not to be taken as financial advice. The opinions expressed on this channel are not necessarily the opinions of the host. i am not a financial adviser and if you are seeking financial advice. please consult a professional. also any research done by myself or others used in or on this channel may or may not be accurate. this also extends to the opinions of the host and any guests. all material on and in this channel is for education and entertainment purposes only and i can not confirm or deny any of this.

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