Going For Black Gold In Russia With Lukoil

Forbes Dividend Investor subscribers received this hotline on Jan. 15.

A recent recommendation was to buy gas station landlord Getty Realty (GTY). Today's pick is another one from the fuel pumping world with a nice yield and discounted valuations–plus it will give you something to talk about with your friends, family or fellow saloon patrons if you watch the 2014 Winter Olympics from Sochi, Russia.

Moscow-based Lukoil was created in November 1991 from three state-run oil and gas companies in western Siberia and called LangepasUrayKogalymneft. It became Open Joint-stock Company LUKOIL in 1993 and it's presently Russia's third biggest integrated energy company in terms of market value behind Gazprom and Rosneft. It's the second biggest oil driller and second only to Exxon Mobil in proven oil and gas reserves.

Russian gas station in Macedonia (LUKOIL) (Photo credit: Wikipedia)

Lukoil produces in Azerbaijan, Kazakhstan, Uzbekistan, the Middle East, South America, Africa and Southeast Asia, and it owns refining, retail and other petroleum-related businesses around the world.

Total revenue is expected to come in at $145.6 billion for 2013, with earnings of $13.33 per share. Operating cash flow over the past 12 months totals $19.08 billion, good for $25.27 per share.

Earnings and cash flow comfortably cover Lukoil's dividend of $3.07 per share, paid in two installments over the past year in May and August. The 5.1% yield is nearly double that of Exxon Mobil, and higher than the 4.6% you'll get if you buy past recommendations Total (TOT), BP (BP) or Royal Dutch Shell (RDS-A).

Lukoil's stated intent is to pay at least 15% of net income as dividends. Because they are paid in roubles, they fluctuate for U.S. investors, although the annual payout has risen 45% over the past five years.

Commodity-based businesses go through cycles of value, and Lukoil seems cheap from all angles. Its five-year average price-sales ratio is 0.53. That's 60% higher than its present 0.33 P/S multiple. On earnings, the five-year average price-earnings ratio of 5.4 is 23% higher than the present multiple of 4.4 times trailing 12 months of earnings.

John Dobosz is editor of Forbes Dividend Investor.  Click here for a 30-day risk free trial.