Energy Sector Shareholder Rewards Take Center Stage

Surging oil prices and speculation that Brent crude will soon hit $100 per barrel are legitimate reasons for investors to consider energy equities and related ETFs. Yet the sector offers other points of allure.

Those include an increasingly shareholder rewards story, featuring both dividends and share repurchase programs. With the S&P 500 Energy Index currently sporting a dividend yield of 3.43%, energy is one of the highest-yielding sectors in the U.S. Comparatively speaking, the VanEck Oil Services ETF (OIH) is a yield laggard at 0.86%, but that doesn’t mean oil services companies lack for shareholder rewards potential.

Two factors could bode well for OIH’s status as a potential bastion of shareholder rewards. First, oil services providers, including OIH member firms, are often correlated to crude prices. That is to say the ETF could benefit from a prolonged period of elevated oil prices. Second, the fund’s modest dividend yield implies there’s ample room for payout growth.

Energy ETF OIH Could Benefit From Dividend Allure

Buybacks and dividends are among the primary drivers of investors’ renewed interest in the energy sector. OIH holdings are likely aware of that point.

But oil companies will have no choice but to contend with choosing between expanding refining capacity and putting cash back in investors’ pockets because of the decline in operating cash flow. Investors are drawn to the sector, in part, by the promise of strong dividends and buybacks,” reported Brian Evans for CNBC.

While energy sector cash flow is declining, it’s still in a steady place. Sector observers say the same of the group’s balance sheets. That supports the sector’s status as a short-duration equity destination. This is because energy companies, including some OIH holdings, can more rapidly deliver cash flow to investors than many growth companies. That’s a positive attribute at a time when bond yields are continually rising.

Some OIH member firms, including Schlumberger (NYSE: SLB) and Baker Hughes (NYSE: BKR), have already boosted dividends and increased buyback plans since the start of 2023, signaling commitment to shareholder rewards while confirming the sector’s recently impressive dividend growth trajectory.

“The exceptional dividend growth for energy companies in 2022 marked a continuation and strengthening of a longer-term trend. Since 2018, energy-stock dividends have grown by 401%. Meanwhile, dividends in the rest of the U.S. market have grown by 86%,” noted Morningstar analyst Lauren Solberg.

For more news, information, and analysis, visit the Beyond Basic Beta Channel.