Crude supply has been normalizing, which has pushed the price of WTI and Brent to new three-year highs. More importantly, most companies are now able to cover their investment and payouts with cash from operations — something investors really want right now. In fact, riding on improving commodity prices, stronger production outlook and healthier cash flows, the companies look poised to continue the momentum in the coming years.

However, despite these positives, it’s difficult for oil prices to reach 2014 levels for quite some time. So, picking dividend growth stocks appears to be a winning strategy currently as these provide steady income and cushion against market risks. These stocks are generally less volatile in nature and hence, are dependable when it comes to long-term investment planning.

Dividend Cuts & Leaner Strategies to Survive the Slump

Following the supply glut and lackluster global demand, oil prices remained low for more than three years. From $100 a barrel in 2014, crude spectacularly fell to a low of $30 in 2016. During the industry downturn, the energy companies adopted cost-cut strategies and realigned their business models to a leaner and efficient structure to stay competitive in the long run.

The companies engaged in reducing headcount, streamlining operations, divesting non-core projects, slashing capex and operating costs to adapt to the weak pricing environment and bolster financials. In fact, in many cases, the companies first resorted to dividend cuts to shore up the cash flows in order to fund the in-process growth projects.

The downturn not only impacted the smaller and the more-leveraged companies, it also affected the fairly larger companies (generally considered safe haven investments). They were forced to cut or suspend cash dividend and share buyback programs.

Pricing Gains & Robust Cash Flows Ease Dividend Payout Pressure

Thanks to rebounding oil prices and strategic initiatives, many energy companies have finally managed to come out of the slump. With the crude markets having recovered from the historic lows and comfortably trading above $60 a barrel for a couple of months now, the impact of improving energy landscape is clearly visible on the energy sector. Moreover, the uptrend is expected to continue on the back of tightening supplies, rising demand, and OPEC-deal extension talks.

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