As detailed in many other articles on this site, Big Oil and Small Oil stocks are excellent long term investments. With so many having significant amounts of student loan debt now, investing to pay off the loans is a primary financial goal. ConocoPhillips (NYSE: COP) is a major oil and natural gas company that can do much to improve the personal balance sheet of any investor.
What should first be noted is that ConocoPhillips is a major holding of not just “any investor,” but of Warren Buffett, considered by many to be the greatest ever. Worth over $50 billion, Buffett has invested heavily in ConocoPhillips through Berkshire Hathaway (NYSE: BRK-A), the holding company that he heads. Up more than 30% for 2013, the shareholders of Berkshire Hathaway have been richly rewarded owning the stock of ConocoPhillips.
A return like that could do much to pay off a student loan!
Why ConocoPhillips is a Great Investment
But there is much to make ConocoPhillips rewarding for those buying now and looking for returns for the future. Earnings per share this year are more than 15%. The price-to-earnings ratio is predicted to fall to 11.56 next year, which is a bullish trend for ConocoPhillips. At present, the average price-to-earnings ratio for a member of the Standard & Poor’s 500 Index (NYSE: SPY) is around 18.
Not only is ConocoPhillips cheaper than the average stock, it pays a much higher dividend income to its shareholders. The average dividend for a member of the Standard & Poor’s 500 Index is around 1.9%. ConocoPhillips has a dividend yield of about 3.8%. As dividend income has constituted about 40% of the historic total return of a stock that is a very bullish feature for ConocoPhillips for future returns.
A Play on Oil and Energy Usage
What is even more bullish is the recent report from the US Energy Administration that projects that global energy usage will increase more than 55% by 2040. That will greatly increase the demand for oil and natural gas. There is no alternative fuel that comes even close to replacing fossil fuels. Coal is under attack by The Obama Administration and others as it is so dirty. Germany and Japan are moving away from nuclear power, due to its danger. As a result, the share price of ConocoPhillips and other oil and natural firms should rise due to the increasing demand from around the world.
Investing in ConocoPhillips, or any asset class, is an exercise in buying its future income stream.
ConocoPhillips has demonstrated that it has an overall income stream that is robust, indeed. As the short float for ConocoPhillips is around 2%, that shows that not many are willing to bet that the stock price will fall. With Warren Buffett as a major shareholder, that is even more evidence that it should continue to rise.
Investments like those can do much to pay off student loan debt loads.
There is obviously a tradeoff between spending dollars on investments like ConocoPhillips or using those funds to pay down student loans. But stocks like ConocoPhillips have proven to be superior investments over time. Just the dividend yield alone should take care of the interest costs of a student loan. As the dividend income of ConocoPhillips rises, it will then start to pay down the principal. Long term investing in companies like ConocoPhillips puts time on the side of the shareholder.
What are your thoughts on ConocoPhillips and the future of energy?