Although the market trading price is close to historical highs, the energy sector has performed poorly over the past two years. Investors now anticipate that as capital-intensive companies prepare to benefit from cooling inflation and falling interest rates, growth stocks will take a slight pause, and the market rebound will broaden. The two low-priced energy stocks mentioned in this article are trading at prices far below general expectations and their intrinsic values. Let’s take a closer look.
The first low-priced energy stock is Hess Midstream (NYSE: HESM), which has a market capitalization of $8 billion and was listed in April 2017. Since then, it has delivered an adjusted return of nearly 160%. Despite stable returns, Hess offers shareholders a substantial dividend yield of 7.3%.
Hess owns, develops, operates, and acquires midstream assets. The company has natural gas gathering and compression, crude oil gathering systems, and disposal facilities, and it also operates a natural gas processing and fractionation plant in North Dakota.
Despite a challenging macroeconomic environment, Hess’s adjusted earnings are expected to grow from $2.08 per share in 2023 to $3.20 per share by 2025. Therefore, given the high dividend and strong growth expectations, the energy stock has a price-to-earnings ratio of 11 times, indicating that the stock is cheap.
Hess has increased its dividend from $1.20 per share in November 2017 to $2.74 per share in 2024. Over the past five years, the dividend has grown at an annual rate of 11%.
Analysts remain optimistic about this energy stock, predicting that Hess shares will rise by 7%. Including dividends, the total return for the stock could approach 15%.
Another low-priced energy stock is Whitecap Resources (TSX: WCP), which pays shareholders an annual dividend of $0.73 per share, translating to a forward yield of 7.1%. In fact, analysts tracking the stock expect a dividend growth rate of 8.4% over the next two years.
From 2010 to 2014, Whitecap’s funds flow grew at a compound annual growth rate of 12% due to organic growth and acquisitions. Since June 2013, the company has paid $2.1 billion in dividends to shareholders, equivalent to $5.33 per share.
Whitecap aims to generate approximately $4 billion in free cash flow by 2029, suggesting that dividends will continue to increase over the next five years. Analysts remain bullish on Whitecap’s stock, expecting it to rise by 30% in the next 12 months.
