2 Oil Stocks Still Worth Buying With Oil Down to $70 a Barrel

3. Solid shareholder returns

When oil prices soften, these companies shift their excess cash straight back to investors rather than burning it on expensive new drilling projects. They both have excellent dividends, with BP’s yielding 5.3% and ConocoPhillips’ yielding 3.1% at their current share prices.

ConocoPhillips, in the first quarter, said it remains committed to returning 45% of its cash from operations (CFO) to shareholders via a competitive mix of base dividends, variable return of cash (VROC), and share repurchases.

BP continues to prioritize a rock-solid base dividend alongside targeted share buybacks, supported by a three-year asset divestment program expected to generate $20 billion by 2027. The company just completed a $500 million share buyback program.

The combination of dividends and share buybacks contributes to solid total returns for the stocks. Over the past decade, BP stock has returned more than 93%, and ConocoPhillips has returned more than 220%.

4. Valuation discounts and sector diversification

Buying into the price dip for BP and ConocoPhillips allows investors to capture distinct, complementary business models at a discount. The two stocks are trading below 11 times forward earnings (ConocoPhillips) and below 8 times forward earnings (BP).

ConocoPhillips is an exploration and production powerhouse. Because it lacks a refining arm, it offers the cleanest, most efficient operating leverage to the eventual rebound of crude prices.

BP, on the other hand, provides an integrated safety net. When crude prices fall, its downstream customers and products division, which includes refining, marketing, and retail, historically captures higher profit margins, effectively acting as an internal hedge against lower raw commodity prices.

5. Demand will ramp up as countries restock

In the short term, crude oil prices may initially continue to drop as oil producers ramp up exports once the Strait of Hormuz is fully reopened. However, major economies are likely to move to restock their heavily depleted oil reserves, such as rebuilding the U.S. Strategic Petroleum Reserve (SPR), which is at its lowest level since 1983, and refilling commercial stockpiles drained during recent Middle East supply crunches.

In many cases, the companies these economies will turn to are those with stable oil production outside the Middle East, and BP and ConocoPhillips, with the vast majority of their production concentrated in North America, Europe, and other non-Middle Eastern regions, should benefit.

Should you buy stock in BP right now?

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James Halley has no position in any of the stocks mentioned. The Motley Fool recommends BP and ConocoPhillips. The Motley Fool has a disclosure policy.

2 Oil Stocks Still Worth Buying With Oil Down to $70 a Barrel was originally published by The Motley Fool