Investors yearning for yield may have pushed some dividend stocks to overvalued levels, but the energy sector offers good value, says Morningstar analyst Josh Peters.
“That's the one industry that tends to have a lot of opportunity in it right now, in large measure because of underperformance,” he says in an interview on Morningstar.com. “You haven't seen valuations get marked up like they have in some other areas of the market.”
Among his favorite stocks are oil titans
Chevron (Ticker: CVX) and
Royal Dutch Shell (RDS/A).
“It would take a really dramatic and long-lasting drop in the price of oil before you would see these dividends become vulnerable,” Peters says. “In all likelihood, both of those companies are going to continue to raise their dividends.”
If you’re worried about the cyclical nature of oil stocks, consider
Spectra Energy (SE), one of the country’s biggest natural gas pipeline operators, Peters says.
He compares Spectra to
Southern Co. (SO), “probably the best fully regulated utility in the country.”
Peters says that “in all likelihood, Spectra will be able to raise its dividend perhaps as much as twice as fast as Southern over the next five to 10 years.”
Standard & Poor’s analyst Tanjila Shafi is bullish on Spectra too.
“We are positive on SE's diverse asset base,” she writes in a report obtained by Moneynews. “We think SE's fee-based businesses and expansion projects will enhance earnings growth in 2012.”
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