We recently published a list of Retirement Stock Portfolio: 12 Energy Stocks To Consider. In this article, we are going to take a look at where Occidental Petroleum Corporation (NYSE:OXY) stands against other energy stocks in retirement stock portfolio.
Navigating Energy Markets: The Financial Pressures on Clean Energy and the Ongoing Role of Fossil Fuels
In 2023, the clean energy sector took the biggest hit, bearing the brunt of global tensions more than any other sector. Supply chain disruptions, the energy crisis following Russia’s invasion of Ukraine, and the subsequent rise in interest rates and inflation impacted all sectors within the natural resources industry. Meanwhile, traditional energy companies capitalized on strong demand and high fossil fuel prices.
Despite these significant challenges, the necessity of transitioning to clean energy has never been more urgent. This is because, without it, the world will suffer from drastic economic losses associated with climate change. According to Deloitte’s report, “Financing the Green Energy Transition: A US$50 Trillion Catch”, the need for collaboration in developing investment strategies is crucial. As such, the collective investment necessary to achieve the transformation to clean energy is between $5 trillion and $7 trillion per year globally through 2050. Even though the renewable sector is facing pressures on financing, global investment in clean energy is set to double the amount going to fossil fuels this year.
According to the International Energy Agency, for the first time in 2024, total energy investment worldwide is expected to exceed $3 trillion, with an estimated $2 trillion going to clean technologies. The remainder is set to go towards coal, oil, and gas. According to the report, the combined investment in renewable power and grids overtook the amount spent on fossil fuels for the first time in 2023. Even though it is improving, the world needs to catch up on investing in clean energy to make the transition successful.
While the importance of clean energy can not be stressed enough, oil and gas companies continue to play a crucial role in the global energy landscape. They are benefitting from high energy prices and increased demand for fossil fuels as the transition to renewables progresses. This sector remains vital for meeting the world’s immediate energy needs and providing stability in energy markets during the transition period. 2022 was especially a blissful year for them, with skyrocketing oil prices bringing in record profits for oil companies. Big Oil more than doubled its profits to $219 billion. Of course, shareholders were rewarded with substantial returns, with top Western oil companies paying a record $110 billion in dividends and share repurchases to investors in 2022.
While the year was as sparkling as it could ever be, the $70 to $80 per barrel oil prices in 2023 fell short of the above $130 per barrel peak driven by the conflict in 2022. While recent spikes in oil prices, such as those following Russia’s invasion of Ukraine, provided opportunities for stock buybacks and investor rewards, companies face long-term challenges. The shale revolution and the pandemic have already impacted oil profits, and future demand for fossil fuels remains unpredictable.
Despite current financial stability and unchanged borrowing costs, energy firms are cautious about expanding production due to these uncertainties. One way to transition to clean energy that can help such companies is by strategically investing in and developing renewable technologies, such as offshore wind, hydrogen production, and EV charging infrastructure. Leveraging existing expertise and financial strength to diversify their energy portfolios and focusing on customer-centric business models and capital excellence is the way to go.
For retirees, investing in energy stocks offers compelling value due to their stability and dividend potential. Dividend-paying stocks are the kind of stocks one should invest in for retirement as they offer a regular stream of income, as well as allow the principal to remain invested for potential growth. Even though the clean energy sector faces challenges such as financial pressures and investment needs, the overall energy market remains robust. The shift towards renewables is driving significant capital into clean technologies, with global investments in clean energy expected to double those in fossil fuels in 2024. This ongoing transition creates opportunities for stable returns from companies that are involved in both traditional and renewable energy sectors.
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Oil derricks in the background with a few workers in the foreground, emphasizing the company’s oil and gas production activities.
Occidental Petroleum Corporation (NYSE:OXY)
Occidental Petroleum Corporation (NYSE:OXY) is a Houston-based energy company involved in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, and North Africa. The three segments it operates through are oil and gas, chemical, midstream, and marketing.
Earlier this year, the company followed through on its commitment when it announced its CrownRock acquisition, raising its quarterly common dividend by over 22%. Free cash flow generation from CrownRock and anticipated profits from non-oil and gas segments of its portfolio gave the company confidence to increase its dividend. Occidental Petroleum Corporation (NYSE:OXY) has raised its dividend for three consecutive years, cutting it in 2020 amidst the negative impacts of COVID-19. Nevertheless, the company’s shareholder priority is to deliver sustainable and growing dividends to its investors in the years to come.
In addition to its $12 billion acquisition of CrownRock, Occidental has also been investing heavily in Carbon capture technology, a risky move that if successful, will help sustain the oil and gas industry. No wonder Warren Buffet bought shares in the company during Q2 2024, bringing Berkshire Hathaway‘s stake to over 255 million.
Occidental Petroleum Corporation (NYSE:OXY) has a trailing twelve-month (TTM) revenue of $27.12 billion. In 2023, the company generated a revenue of $28.26 billion, a decrease of 22.9% from the prior year. Net income and adjusted income attributable to common stockholders for the second quarter of 2024 was $1.0 billion, or $1.03 per diluted share. The company has also disclosed a free working cash flow before working capital of $1.3 billion and demonstrated a strong position to achieve an annual free cash flow of $5.2 billion. This improved working cash flow indicates the company’s positive operational health and financial stability.
At the end of the second quarter of 2024, the number of hedge funds with stakes in Occidental Petroleum Corporation (NYSE:OXY) increased to 62 from 61, with stakes collectively valued at over $185.20 billion.
Overall, OXY ranks 10th on our list of energy stocks in retirement stock portfolio. While we acknowledge the potential of energy stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. Retirement Stock Portfolio: 12 Energy Stocks To Consider is originally published on Insider Monkey.
