Equinor, TotalEnergies, and Repsol are up sharply this year—but their solid dividend outlooks make them worth hanging onto.
Even Kleppa/Oyvind Gravas, Woldcam AS
Some of Europe’s lesser-known integrated oil companies might be worth considering for investors who want to take advantage of this year’s surge in prices.
Following Russia’s invasion of Ukraine in February, most oil companies have seen their valuations increase as crude prices spiked above $100 a barrel for the first time since 2014. Natural-gas prices are also at the highest level in years on concerns that supplies are threatened.
(ticker: BP.U.K.) and
(SHEL.U.K.) attract the most headlines. But shares of three smaller companies—
(EQNR.Norway)—are up sharply against a backdrop of falling stock markets. Whether they are worth holding now depends on whether investors prize them at current prices because of the solid outlook for dividends.
“The past 2½ years have been a complete roller coaster,” says Jason Kenney, head of European oil research at Santander. “A lot of it was exogenous; nobody could have forecast the kinds of impacts and swings we’ve seen in oil prices.”
On top of that, oil companies are under pressure as investors prioritize environmental, social, and governance-friendly firms. ESG investors are now realizing that oil companies have money to invest in, and much to gain from, the transition to a low-carbon future.
Paris-based TotalEnergies, the biggest of the three, has a market capitalization of 136 billion euros ($144 billion). Its main business segment is refining and chemicals, and it’s one of the largest members of the MSCI Europe ESG Leaders index.
It fetches five times this year’s expected earnings, trading in line with peers. Shares are up 14.8% this year at €51.33. Banco Santander rates it a Hold with a target price of €50.90, and it has a dividend yield of 5.4%.
TotalEnergies in April said it would accelerate the pace of share buybacks, pledging to buy $2 billion of its own stock by June after acquiring $1 billion in the first quarter. It also increased the interim dividend by 5% from last year.
Chief Executive Patrick Pouyanné was ambivalent on Russia, where TotalEnergies owns a 20% stake in
Norway-based Equinor, with a market value of 1.1 trillion kroner ($110 billion), operates worldwide but is majority-owned by the Norwegian state. It fetches 6.8 times this year’s expected earnings and has a dividend yield of 2.4%.
Equinor is paying an extraordinary dividend in the second and third quarters. Shares are up 41% this year to NOK332.05. RBC Capital Markets has a price target of NOK330 and rates the shares a Hold. In its May 4 earnings report, Equinor stuck to plans to keep buybacks and dividends at $10 billion this year.
Madrid-based Repsol has the smallest market capitalization of the three, at €21.3 billion. It fetches five times this year’s expected earnings, with a dividend yield of 1.9%. Shares are up 38% to €14.41. Deutsche Bank’s James Hubbard has a target price of €16.77. For the first quarter, Repsol said that almost 70% of its profit came from its exploration-and- production business. The company is investing heavily in biofuels and hydrogen gas.
Analysts’ price targets suggest further increases in share prices may be limited, but that’s against a slumping market—the
Euro Stoxx 50
is down more than 10% so far this year. The outlook for energy prices staying high, and the possibility of even bigger distributions to shareholders mean these companies might be worth a look.