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It’s the year 2115. Which companies today would you put your money on to be around in the next century?
Apple (NASDAQ: AAPL)? Perhaps. It certainly has constructed a formidable franchise over the past decade.
How about Facebook (NASDAQ: FB)? A strong franchise, to be sure, but it has much less of a chance. Though Facebook will certainly be around for years to come, extending its existence 100 years out will require a succession of exceptional managers. Each generation provides a limited number of exceptional anything.
Technology in general, and the Internet in particular, are continually challenged by new entrants. It’s no easy feat to stave off the competition. Though it’s not impossible. International Business Machines (NYSE: IBM) has been around for nearly 100 years. Apple has been around for nearly 40 years.
I would bet on a simpler business model, and I’d go big. Specifically, I’d bet on “Big Oil,” and I’d stick with the biggest of the big: Exxon Mobil (NYSE: XOM), BP (NYSE: BP), Royal Dutch Shell (NYSE: RDS-A) and Chevron (NYSE: CVX).
All four have been around at least 100 years. Their businesses have seen and endured it all. Of course, being around 100 years doesn’t mean being around 100 more. Ask any centenarian. But I like their odds.
Economy of scale, for one, imposes a high hurdle for the competition to clear. All four giants operate globally and all four budget annual capital expenditures in $10 billion chunks. It takes a lot of investment to keep annual revenue flowing in at $100 billion chunks.
Predictability also helps ensure these companies will still be extant 100 years hence. Improvements in gasoline and lubricant quality are evolutionary, not revolutionary. They happen in incremental steps. The process ensures billion dollar investments aren’t rendered obsolete overnight.
Most importantly, demand is guaranteed, and it’s guaranteed to grow. There is no energy source on either the near or distant horizons that can supplant oil and natural gas.
Wind, solar and biofuels are all energy chimeras.
Wind and solar compete with natural gas to generate electricity, and not very well. Wind and solar must be backed by conventional (natural gas and coal) generation, because wind and sun are unpredictable. Both sources also impose a very consequential opportunity cost. Windmills and solar panels require vast tracts of real estate.
Biofuels compete with oil in its primary market – transportation fuels – but again, not very well. If it were not for mandates, no biofuels would be blended with gasoline and diesel. No rational being produces an energy source that consumes more energy than it provides.
Continual demand growth supports a consistent dividend policy. With BP and Royal Dutch Shell, we’re talking decades of dividend payments. With Exxon Mobil and Chevron, we’re talking centuries: both have paid a dividend for over 100 years.
And with these giants, you can pick your dividend preference. Royal Dutch Shell and BP offer high yield, but less dividend growth. Royal Dutch yields 5.9%. BP yields 5.5%. Chevron and Exxon Mobil yield 3.9% and 3.2%, respectively, but they offer a higher rate of dividend growth. More now or more later, it’s your choice.
Of course, there are no sure things. No one knows what 2115 will look like. But if you are a long-term investor, Big Oil dividends are about as sure as it gets for reliable income.
Cheap Oil Here to Stay – For Now
Crude hasn’t been this cheap since March 11, 2009. And it’s likely to stay low for a while. OPEC refuses to cut production. And US production is expected to increase – not decrease – an additional 600,000 more barrels a day. The Saudis have played this one wrong – and you could profit from their blunder.
Top analyst Tyler Laundon’s found what he considers the best way to play this new, cheap oil boom.