The energy sector has had its share of struggles this year, but there are some points in favor ETFs dedicated to this group, including value tilts and above-average dividend yields. Those traits apply to the iShares Global Energy ETF (IXC ).
The $868 million IXC, which tracks the &P Global 1200 Energy Sector Index and holds 62 stocks, is higher by nearly 4% over the past week, an impressive showing when considering it was accrued against the backdrop of concerning supply/demand headlines.
Last week, American Petroleum Institute disclosed yet another estimated weekly increase in U.S. oil inventories, the Energy Information Administration rejected it, reporting a drawdown of 1.7 million barrels for the week to October 18.
This interrupted a month-long chain of crude inventory builds as prices moved lower on global economic growth concerns and its negative impact on oil demand. Last week, the EIA reported a 9.3-million-barrel increase in inventories sending prices plummeting. Still, some market observers see opportunity with some of IXC’s big-name components.
Delving Into The Dividend Discussion
“We think the major integrated oil group offers a bevy of opportunities for dividend-focused investors,” said Morningstar in a recent note. “Currently yielding anywhere from 4% to 6.5%, the group is largely undervalued based off our assumptions. At those dividend levels, they are trading at historically high levels compared to decades ago, when they traditionally yielded anywhere from 3% to 4%. However, we do not see dividends at risk.”
The research firm views Royal Dutch Shell (NYSE: RDS-A) and France’s Total (NYSE: TOT) as two of the stronger global oil equities. Those stocks combine for just over 17% of IXC’s roster.
“Royal Dutch Shell and Total stand out with the greatest opportunity in our opinion,” according to Morningstar. “Shell, yielding nearly 6.5%, has grown cash flow steadily over the past eight quarters, and we expect it to continue to do so. In fact, management’s current plans call to return $125 billion in dividends and share purchases during the next five years. That’s nearly half its current market cap.”
IXC has a trailing 12-month dividend yield of almost 4%.
This article originally appeared on ETFTrends.com.
