Low-Cost Oil Powerhouse Fueling Consistent Income

Author

Noah Zelvis
May 29, 2025

ConocoPhillips (NYSE: COP) has quietly become one of the most attractive dividend plays in the energy sector. After a nearly 30% pullback from its 52-week high, shares now yield 3.65%, offering income investors a rare combination of high yield, capital discipline, and upside potential, particularly if the sector ultimately recovers. The stock closed at $85.55 on May 27, with management reaffirming their shareholder focus by declaring a $0.78 quarterly dividend, payable June 2.

While oil prices have cooled, ConocoPhillips’ cost advantages and strong balance sheet mean it's built to do well even in lower-price environments - this is a key edge in a cyclical industry like oil and gas. 

The broader energy story also matters here too. Oil demand isn’t disappearing, and in fact, the International Energy Agency (IEA) still projects modest global demand growth through 2030, particularly from non-OECD countries. Sectors such as aviation, shipping, and petrochemicals remain highly dependent on oil, and even as renewables expand, oil and gas continue to be essential to global energy infrastructure. The recent slump in prices reflects short-term oversupply, not long-term demand erosion - an opportunity for low-cost leaders like COP.

AI Growth Stocks (Sponsored)

Artificial Intelligence is shaping up to be the most disruptive force since the internet—and a new report shares 5 stocks poised to benefit.

Among them is a little-known "sleeper stock" still flying under Wall Street’s radar.

These picks come from a Zacks senior strategist and target high-growth areas powered by ChatGPT and machine learning.

Early entry could mean massive returns as AI’s $15 trillion boom unfolds.

[Download your free copy of “Zacks Top 5 ChatGPT Stocks” now.]

Why Conoco Is Different

COP isn’t just another E&P player. Its $40/barrel breakeven cost across decades of inventory makes it one of the most efficient producers globally. That efficiency powered $6.1 billion in operating cash and $2.1 billion in free cash flow last quarter(!). With $7.5 billion in cash on hand, Conoco has plenty of firepower to fund dividends, buybacks, and growth.

In Q1 alone, the company returned $2.5 billion to shareholders in the form of $1 billion in dividends and $1.5 billion in buybacks. As CEO Ryan Lance said, “We believe our shares represent a very attractive investment at these prices.”

COP is doubling down on long-cycle growth projects, such as the $8 billion Willow project in Alaska (expected to reach 180,000 barrels per day at peak production) and major LNG developments in Qatar and along the U.S. Gulf Coast. These projects are expected to generate $6 billion in additional free cash flow by 2029, even if oil prices average just $70 per barrel. That gives ConocoPhillips a multi-year runway for expanding returns to shareholders.

Action: Look to potentially build a position in COP below $90. Watch for Q2 earnings in early August to track production and project updates. This is especially true with more progress on Willow and LNG-related milestones.

Game Changing Picks (Sponsored)

Some stocks don’t just rise — they explode.

A new report reveals 5 stocks with the potential to gain 100%+ in the next 12 months, backed by strong fundamentals and bullish technical signals.

Past picks from this team have soared +175%, +498%, even +673%.¹

This free report gives direct access to the names and tickers — no fluff, just high-upside plays.

Available free until midnight tonight.

Valuation Still Attractive

Despite its operational strength, COP trades at just 10.9x forward earnings, below peers like Chevron (13x) and ExxonMobil (12.5x). Its free cash flow growth, cost discipline, and dividend growth track record make that multiple look too cheap.

Q1 2025 saw a 104% YoY increase in free cash flow to $3.9 billion, while production hit 2.39 million BOE/day, up 5% from the year prior. That kind of execution, combined with conservative capital spending, reinforces the case for a recovery toward $110/share. 

COP also maintains a 29% gross margin and a return on capital of over 12%. This is a quality business model that isn’t going to be upended anytime soon.

Surprising Stock Picks (Sponsored)

These 6 Stocks Could Soar Under Trump

The new administration is already disrupting markets—and investors are watching closely.

A new report identifies 6 unexpected stocks that could surge as policy and spending shift.

These picks share traits with past winners like First Solar (+196%) and Amplify ETF (+277%) post-election.

The full list is available now, free

 [Click here to access “Presidential Profits” instantly.]

Risks to Watch

  • Prolonged weakness in oil prices could delay buybacks or weigh on sentiment.

  • Regulatory or ESG scrutiny could slow progress on new drilling or LNG projects.

  • Global LNG buildouts could face inflationary or political risk.

Still, Conoco’s low breakeven input prices, fortress balance sheet, and flexible capital return program make it better positioned than most to manage through volatility. Its ability to cut costs quickly and maintain production discipline also offers more downside protection.

Action: If you’re wary of energy prices, consider COP with a position in a broad energy infrastructure ETF (such as AMLP or ENFR), which can provide more stable, fee-based cash flows from pipelines and storage.

Bottom Line: High Yield with Staying Power

COP has grown its dividend at 10%+ per year, including a 34% hike in 2024, and plans $20+ billion in buybacks through the end of the decade. Add in cost advantages, long-term cash flow growth, and a shareholder-friendly mindset, and you’ve got a high-yield stock that’s hard to beat. With energy markets expected to stabilize over the next 12-24 months, this could be a moment to lock in both yield and value.

That’s all for today’s edition of the Dividend Brief.

Thanks for reading, and if you have any feedback or dividend stocks you want me to take a look at, just reply to this email!

—Noah Zelvis
DividendBrief.com