Morgan Stanley says buy this dividend-paying ‘key beneficiary’ of rising oil prices

Morgan Stanley Highlights Dividend Stock Poised to Gain from Higher Oil Prices for Investors

Imagine filling up your car and suddenly the price jumps overnight—kind of like when you’re at a carnival and the game gets harder just as you’re getting good at it. That’s what’s happening in the oil market right now, and it’s important for investors to understand why.

Why Oil Prices Are Heating Up

Recently, oil prices have soared because of tensions in the Middle East. Brent crude oil jumped over 60% in March, which is the biggest leap in one month since 1988. West Texas Intermediate (WTI) crude oil also went up more than 51%. Even if the fighting calms down, experts at Morgan Stanley say oil prices will likely stay higher than before the conflict. This is because countries need to refill their oil supplies, and there’s still a lot of worry about future problems in the region.

According to Morgan Stanley, WTI oil could average about $80 a barrel in 2026 and $70 in 2027. They even raised their estimates for future years, saying prices could stay around $70 a barrel, up from their previous guess of $65.

For investors, these numbers matter because higher oil prices can mean bigger profits for certain oil companies, but also higher costs for everyone else. The last time oil prices rose this quickly was in the late 1980s, which led to both opportunities and risks in the stock market. Here’s a look at historical oil price spikes from the U.S. Energy Information Administration.

Bull Case: Why Some Investors Are Excited

  • Big Profits for Oil Companies: Companies that find and pump oil, like Chord Energy, can make more money when oil prices are high.
  • Upgraded Outlook: Morgan Stanley upgraded Chord Energy’s stock, saying it could go up nearly 15% from where it was.
  • Strong Cash Flow: Chord Energy is expected to have an 18% free cash flow yield at $80 oil—much higher than the industry average of 12%.
  • Shareholder Returns: The company also gives back more money to its investors, with a 12% return compared to an average of 6% for similar companies.
  • Growing Dividend: Chord Energy recently raised its dividend to $1.30 per share and now offers a 3.6% dividend yield.
  • Better Drilling Technology: The company is using longer wells, which helps them get more oil out of the ground for less money.
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Bear Case: Why Others Are Cautious

  • Higher Costs for Everyone Else: Rising oil prices mean higher gas prices, which can hurt consumers and slow down the economy.
  • Possible Price Drop: If the Middle East situation calms down much faster than expected, oil prices could fall again.
  • Not Much More Upside: While Morgan Stanley is bullish, most analysts see only about 4% more growth in Chord Energy’s stock price from here.
  • Global Uncertainty: Oil prices are unpredictable, and unexpected events can quickly change the outlook.
  • Environmental Concerns: Some investors worry about the long-term risks of investing in fossil fuels as the world shifts toward cleaner energy.

What the Experts Are Saying

Wall Street is mostly positive on Chord Energy, with 18 out of 20 analysts calling it a buy or strong buy. However, the average price target suggests only a small gain from the current price. This shows that while there’s excitement, there’s also caution about how much higher the stock can go.

Drilling longer wells is a big deal, too. According to the American Petroleum Institute, these longer wells can help companies get more oil using less money, which is good for profits.

Investor Takeaway

  • Watch Oil Prices: If oil stays high, companies like Chord Energy could benefit—but be ready for ups and downs.
  • Diversify: Don’t put all your money into oil stocks. Mix in other sectors to lower risk.
  • Check Dividends: Look for companies that pay steady or rising dividends for extra income.
  • Stay Informed: Keep an eye on world events and oil market updates, as things can change quickly.
  • Think Long-Term: Remember that while oil can be hot now, the world is slowly moving toward cleaner energy, so balance your investments.

For the full original report, see CNBC

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