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It's been a rough year for Norwegian energy giant Equinor(NYSE: EQNR), with the stock price falling 19.5% year to date. Equinor has been the worst-performing energy major in 2024, underperforming peers ExxonMobil, Chevron, TotalEnergies, Shell, BP, Eni, and the broader energy sector.
Despite the poor performance of the stock price, Equinor continues to generate solid earnings and return a record amount of capital back to shareholders. Here's why Equinor stands out as one of the best oil and gas dividend stocks to buy now.
Image source: Getty Images.
A highly profitable oil and gas portfolio
Equinor is a majority-state-owned international energy company. Since 75% of the company is owned by the Norwegian state and Norwegian private owners, Equinor is heavily influenced by Norway's energy policy.
Norway has abundant offshore reserves along the Norwegian Continental Shelf (NCS). Equinor has been drilling the NCS for decades. Although it has diversified its upstream portfolio, Norwegian exploration and production efforts still account for 85% of its total oil and gas operating income.
There's no real need for Equinor to diversify its oil and gas portfolio too much beyond Norway because of its experience operating in the region and because technological advancements have unlocked new opportunities along the NCS. For example, Johan Sverdrup has become the third-largest oil field along the NCS and now represents a whopping third of Norway's oil production.
On its third-quarter earnings call, Equinor said that Johan Sverdrup has produced over 1 billion barrels of oil in five years, over $80 billion in revenue, and set a new record of 756,000 barrels produced on Sept. 21. For context, ExxonMobil averaged 630,000 barrels per day from Guyana in second-quarter 2024. ExxonMobil has been investing heavily in Guyana, which is now its largest offshore production region.
Despite growing Johan Sverdrup, Equinor's NCS production was up just 2% in the quarter compared to the same quarter last year. As mentioned, the company is influenced by Norway's energy policy, which has aggressive climate targets. As such, Equinor has been investing heavily in renewable energy and making measured investments in oil and gas. It has been far less aggressive than companies like ExxonMobil and Chevron, which are accelerating oil and gas capital expenditures and making blockbuster acquisitions.
Equinor's renewable energy investments
Equinor has been investing in a variety of renewable energy projects. It was an early adopter of offshore wind and plans to have 12 gigawatts (GW) to 16 GW of installed renewable capacity by 2030. Renewable power generation reached 677 GWh in third-quarter 2024 compared to just 373 GWh in third-quarter 2023.
In September, it completed Northern Lights, which is a cross-border carbon capture, transport, and storage facility.
On Oct. 7, Equinor announced that it acquired a 9.8% minority stake in Danish wind giant Orsted. The stake is worth about $2.5 billion.
Despite these recent accomplishments, Equinor's renewable energy execution over the last few years has been fairly sloppy. It has divested (and continues to divest) a number of its major projects to reduce capital commitments and operating risk. The renewable energy industry as a whole has been in a downturn due to higher interest rates and lack of investment. So Equinor's decision to not accelerate oil and gas investments and focus on renewables has been a bit of a bad look, at least in recent years. But it could still be the right long-term move.
Passing along profits to shareholders
It would be one thing if Equinor were funneling all of its oil and gas profits into renewable energy. But it isn't doing that -- not even close.
In fact, Equinor expects its full-year capital expenditures to be $12 billion to $13 billion -- with the majority of that going to oil and gas. And yet, it is still returning $14 billion to shareholders through dividends and buybacks.
Equinor has spent the last few years buying back a ton of stock and paying an ordinary and extraordinary dividend. Recently, those payments have been $0.35 per share each, good for a yield of 11% based on Equinor's stock price as of market close on Oct. 25.
Over the last three years, Equinor has reduced its outstanding share count by 15.3% -- an almost unheard-of pace of stock repurchases. For context, Chevron, which has also been aggressively buying back stock, has only reduced its share count by 5.3% over the last three years.
The massive capital return program was Equinor's way of putting capital to work and rewarding shareholders without ramping up oil and gas production to push it further from its sustainability goals.
Unfortunately, Equinor has made it clear that this period of massive capital returns from 2022 to 2024 is ending. 2025 is set to feature an $8 billion and $10 billion capital return program and the elimination of the extraordinary dividend with plans to increase the ordinary dividend by $0.02 per share per year.
The extraordinary dividend cost roughly $4 billion a year, so the capital return program is expected to be about $4 billion in dividends and $4 billion to $6 billion in buybacks. It's still sizable, but not nearly as big as what investors have grown accustomed to in recent years. And it means that Equinor will sport a dividend yield around 5.5%, not 11%.
Equinor remains an excellent dividend stock
Equinor is arguably the best oil major to buy now. The stock is dirt cheap with a price-to-earnings ratio of just 7.8. The yield is still massive even though the extraordinary dividend is going away. And Equinor still has a highly efficient oil and gas portfolio, and room to monetize renewables.
Equinor's decision to invest in Orsted relieves the pressure on it to develop Equinor's own renewable energy projects. The opening of Northern Lights shows that Equinor's renewable energy portfolio is much more than just offshore wind.
Add it all up, and Equinor is a great buy, even though it won't be returning another $14 billion to shareholders in 2025.
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Daniel Foelber has positions in Equinor Asa. The Motley Fool has positions in and recommends BP, Chevron, and ?rsted A/s. The Motley Fool recommends Equinor Asa. The Motley Fool has a disclosure policy.
