Energy stocks will be hot again in 2023

Bloomberg

After two straight years of big gains, energy stocks could outperform the market again in 2023, but this time it will be higher dividends rather than oil that will spur appetite for the sector.
In an effort to lure income investors, energy firms have aggressively boosted dividends over the last 12 months. Diamondback Energy Inc increased its payout 412% in the span, the most of any S&P 500 member. Five of the index’s 10 biggest dividend boosts have come from the energy sector, including APA Corp.’s 355% hike, Pioneer Natural Resources Co.’s 276% raise and Halliburton Co.’s 167% increase.
Those supersized payouts will look even more attractive if the US economy slips into a recession next year, which would increase the allure of cash. Real US gross domestic product is poised to shrink to meager 0.3% growth in 2023, down from 1.9% in 2022, according to data compiled by Bloomberg.
“In a recession, I want to see cash,” Energy Income Partners CEO James Murchie said, adding that his investment firm was launched during the bursting of the dot-com bubble because investors were seeking “real income and real assets.” He expects the same dynamic to play out in a potential recession in 2023, driving equity positioning in dividend-paying stocks in energy and utilities.
Investors will look for total returns rather than just share price gains in 2023, Bank of America’s head of equity and quantitative strategy Savita Subramanian said in a Bloomberg TV interview this week. Subramanian was also bullish on the energy sector, which she said has demonstrated spending restraint despite higher oil prices.
The S&P 500 Energy Index’s total return so far in 2022 is approaching 63%, which breaks down to 57% price appreciation and another 6% from yield. By contrast, the broader S&P 500 has posted a total negative return of 17% — just a little better than its 19% price
decline thanks to payouts by index members.