by Bryan Perry

March 1, 2022

Depending on how one views the snapback rally late last week, it would seem a window of opportunity, briefly opened for investors looking to hedge against inflation, rising rates and geopolitical volatility.

After the price of wheat spiked above $9/bushel and WTI crude spiked to over $100/bbl on the initial headlines of the Russian invasion into Ukraine, the market took on the narrative that a brokered meeting this week between a Russian delegation and Ukraine leaders signaled that that worst may be over.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

On this sentiment shift, WTI retreated to close out Friday’s session at $91.59/bbl, with most of the leading oil stocks consolidating recent gains. The situation in Ukraine can break in either direction, suddenly, since China’s Xi Jinping had a call with Vladimir Putin, inducing Putin to take on the appearance of being more accommodative towards negotiations, triggering the big gain for stocks.

China is in a diplomatic box. Xi is clearly backing Putin, inviting global criticism for that fact. On the one hand, China sees the Ukrainian situation as diverting attention and assets away from U.S. efforts to tamp down Chinese aggression in the Indo-Pacific region. On the other hand, taking sides with Russia draws fire from every corner of the world that only elevates the level of mistrust and damage to China’s profile.

NATO and the U.S. are leading a wave of heavy sanctions on Russia that will force it to depend much more heavily on China buying its oil, wheat and other exports – further evidence of its support for Russia.

Such actions would severely tarnish China’s ongoing claim that it is a major advocate for the sanctity of nation-state sovereignty, which is one of the great hypocrisies of modern times.

Russia is now the largest producer of oil and also exports 29% of the world’s wheat supply.

The World’s Top 10 Oil Producers

  1. Russia – 10.58 million barrels per day (BPD)
  2. Saudi Arabia – 10.13 million BPD
  3. United States – 9.352 million BPD
  4. Iran – 4.469 million BPD
  5. Iraq – 4.454 million BPD
  6. Canada – 3.977 million BPD
  7. China – 3.383 million BPD
  8. United Arab Emirates – 3.174 million BPD
  9. Kuwait – 2.753 million BPD
  10. Brazil – 2.622 million BPD


China is the top importer of oil in the world, soaking up 25.8% of total global oil imports, an amount that is valued in excess of $176 billion (

Any major interruption of Russian oil exports will very likely have a material impact on spot prices that could have oil trading back up through $100/bbl like a hot knife through butter. It’s almost hard not to see this scenario unfolding in the midst of what looks to be a very determined Kremlin effort to take Ukraine.

Against this very challenging backdrop of phenomenal fluidity, the energy sector has proven to be a bastion of strength in portfolios for 2022. It’s hard to see how this plays out to where oil prices decline meaningfully, thereby further supporting the bullish investment thesis driving the energy sector higher.

Shares of the S&P Energy Sector SPDR ETF (XLE) hit a high of $70.50 on February 11 and have spent the past two weeks digesting gains. What’s important to note is that when XLE hit an all-time high back in June 2014, it was due to concerns about possible international supply disruptions along with other factors that included improving economic conditions and sanctions on Iranian exports. And today, we have curbs on U.S. oil production that only make matters more sensitive to sudden spikes in crude prices.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Shares of XLE pay a current dividend yield of 3.42%, whereas the top two holdings of the ETF pay a bit more.

Because of the new-found tidal wave of profits from higher oil prices, a handful of companies have adopted the model of what are called fixed-plus variable dividend policies, a departure from traditional dividend payouts. Instead, companies aim to attract investors by offering a substantial base dividend that is positioned to grow over time along with a variable and/or special dividend, that returns more of the profits back to shareholders. This is also in addition to increasing stock buybacks.

A case in point is Devon Energy Corp. (DVN), which approved a fixed-plus-variable dividend of $1.00 per share based on fourth-quarter performance. At the time, the company authorized an increase of 60% to its share-repurchase plan to $1.6 billion. Devon said that after its fixed dividend is funded, it intends to pay out up to 50% of future free cash flow in the form of variable dividends. Taking the current quarterly $1.00 per share dividend as a forward guide to its 2022 annual payout, shares of DVN are yielding 7.2%.

Pioneer Natural Resources Co. (PXD) and Coterra Energy Inc. (CTRA), which is the merger of Cabot Oil & Gas and Cimarex Energy, are also featuring variable dividend policies. This approach is smart in that smaller base dividends are more manageable in downturns, while during periods where profits are gushing, oil companies can temporarily increase payouts. (I have no position in DVN, PXD or CTRA.)

The allure of high-fixed dividends being paid from struggling companies almost always results in the underlying stock losing value on the notion of an eventual slashing of the dividend or having to take on debt to support it. The market tends to punish stocks of companies that reduce or omit dividends entirely.

More is being written from energy analysts about how this model is the wave of the future for the energy stocks, so while the factors that hold oil prices at their current levels may persist for the foreseeable time, one of the most compelling high-yield hedges against inflation, global supply disruption, Russia, Iran, China and the deep denial of the current White House energy policy are blue-chip energy stocks and ETFs, there’s always a bull market somewhere, and the oil sector seems to be in a raging one now.

Navellier & Associates owns Devon Energy Corp. (DVN), Pioneer Natural Resources Co. (PXD) and Coterra Energy Inc. (CTRA), in managed accounts but does not own Pioneer Natural Resources Co. (PXD). Bryan Perry does not own Devon Energy Corp. (DVN), Pioneer Natural Resources Co. (PXD) and Coterra Energy Inc. (CTRA), personally.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
The Stock Market Delivers a Successful Retest

Sector Spotlight by Jason Bodner
Markets Often Over-React – in Both Directions

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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