Perhaps the easiest way to profit from higher oil prices is to buy shares of the largest energy firms in the world. These companies are referred to as “integrated” oil and gas firms, which stems from the fact that they are involved in just about every facet of the industry. This includes the upstream business, which refers to exploring and producing fossil fuels, as well as downstream, which is related to the refining and marketing of the fuels to sell to consumers.

The integrated firms offer a great deal of stability, given the wide array of their business activities and geographical diversification. For U.S.-based investors, most are familiar with Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX) and ConocoPhillips (NYSE: COP), each of which possess reasonable earnings multiples of around 10 and dividend yields between 2% and 3%.

But investors would be well served to consider three European counterparts. These rivals sport equally reasonable valuations, but have higher dividend yields. This is due to a confluence of factors, including the fact they are not included in U.S.-based indexes that can be driven up from passive index investors. They are also overlooked by investors due to a phenomenon known as “home-bias,” which simply means investors tend to rely too heavily on domestic investments and not pay enough attention to foreign markets.

Whatever the reason, buying into the three firms I discuss below represents a rather straightforward way to pick up extra yield without much change in the risk/reward tradeoff that comes with investing in integrated oil firms.

1. Repsol YPF SA (NYSE: REP)
Forward P/E: 11
Dividend Yield: 3.5%

Repsol is a Spanish-based oil giant that also has sizable business interests in Argentina through an 81% ownership stake in YPF, acquired in 1999. (YPF used to be Argentina’s state-run oil company.) Repsol qualifies as an integrated energy firm by exploring, producing and developing oil and natural gas. Europe accounts for nearly 70% of sales, with Argentina just below 20%, followed by a number of other areas such as North Africa and North America at less than 2% of the top line.

Repsol trades at a low valuation and sports an above-average dividend yield. It could report about $3 a share in earnings this year, for a forward P/E of less than 11. The dividend yield of 3.4% is above comparable levels for U.S.-based integrated oil rivals. Given the company’s size, Respol isn’t going to grow rapidly, but there is potential, stemming from a recently signed agreement with Chinese oil giant Sinopec (NYSE: SHI) to develop business jointly in Latin America. Management is also looking to lower its stake in YPF and could pass the capital on to shareholders through higher dividends. 

2. Royal Dutch Shell plc (NYSE: RDS-A) (NYSE: RDS-B)
P/E: 10.5 / 10.5
Dividend Yield: 4.1% / 4.8%

Like Repsol, Royal Dutch Shell is an oil and gas giant based in Europe. Its headquarters is in the Netherlands, but it is globally more diversified than Respol: Europe accounts for less than 40% of sales, Africa and Asia nearly 30%, and the United States more than 20% of the top line. Total growth has been strong in the past decade, with sales growing 9% a year and earnings improving at a nearly 15% clip each year during this period. These stellar results have helped push Royal Dutch into becoming one of the five largest energy firms in the world.

In the past few years, Royal Dutch has focused on cost cutting and simplifying its operations to a smaller handful of businesses, such as oil and gas production and refining. It has passed savings on to shareholders in the form of higher dividends and buybacks.

For the coming year, the firm should post earnings close to $8 a share, for a low overall forward P/E of less than 9. The dividend yield is again higher than can be found at most U.S.-based rivals. Both the ‘A’ and ‘B’ shares have identical voting rights — the only difference is where the income is generated. This stems from when Royal Dutch and Shell were combined into one company back in 2005.

3. Total S.A. (NYSE: TOT)
P/E: 9.2
Dividend Yield: 4.6%

Total is based in France and, like Repsol, counts on Europe for about 70% of sales. North America and Africa account for just over 7% each, with the rest of the top line spread throughout the world. Total has an impressive growth track record and has been able to boost sales and profits by double digits in each of the past five and 10-year periods.

Other strong points for considering Total include solid gas assets and financial soundness with low levels of overall debt. The stock is also one of the cheapest integrated oil firms around, with a forward P/E just over 8. The dividend is well-covered by cash flow and, like the other players listed above, the dividend yield is well above average.

Action to Take —> Global stock markets have perked up big time in recent months, and this has pushed up the share prices of most integrated oil and gas firms. But overall, the above firms still boast higher yields than their U.S.-based peers. A further run could push these yields lower, especially if global demand continues to grow and drive demand for fossil fuels. As such, it may be a good idea to consider acting quickly on these stocks. 

P.S. — We’ve just identified six surprising events that could break your portfolio wide open in 2011. Knowing these pivot points in advance lets you focus your investing strategy like a beam of light in the dark… and make a lot of money in a hurry. Get them free by simply watching this video presentation.