High-Dividend Energy Stocks: A Potential Investment Opportunity
If you’re aiming to earn some income from your investment portfolio, high-dividend energy stocks could be worth considering. These companies typically possess long-term assets, maintain steady cash flows, and practice disciplined capital management, which enables them to provide consistent dividends to their shareholders. Moreover, they tend to benefit from increasing energy demand driven by utilities and large tech firms, and they can serve as a hedge against rising energy costs.
For those interested in specific options, I have two energy stocks in mind that I’m looking to buy this February.
Exxon Mobil
Exxon Mobil (NYSE:XOM) is a major player in the oil and gas sector. As an integrated oil and gas company, it explores and produces energy while also refining it into various products like gasoline and diesel. The firm has successfully weathered the ups and downs of the energy market, largely credited to its robust business model and disciplined capital management, which have allowed it to raise its dividend for 43 consecutive years.
With a solid balance sheet and a break-even pricing strategy, Exxon can adapt to whatever challenges the market presents. Its operations in Guyana are viewed as a cost-effective growth engine, and over the last five years, it has achieved a return on capital employed of 11%, which outpaces its closest competitor by 2 percent. In the longer term, Exxon plans to reduce its breakeven price to $35 per barrel by 2027 and $30 per barrel by 2030.
Along with consistently increasing dividends, Exxon has also returned considerable capital to shareholders via stock buybacks. For those seeking a reliable dividend and a sound business model, Exxon Mobil is a compelling choice.
Energy Transfer
Energy Transfer (NYSE:ET) operates as an energy broker with an extensive network of over 140,000 miles of pipeline. The company is engaged in transporting crude oil, natural gas, and natural gas liquids to significant end-users.
What stands out about Energy Transfer is its long-term potential tied to the importance of natural gas for utilities and tech companies. With more than 105,000 miles of natural gas pipelines and considerable storage capacity, Energy Transfer is set to benefit as it connects its natural gas network with major hyperscalers, responding to the increasing energy demand from data centers and energy companies.
Last year, the company finalized an agreement with Oracle, supplying natural gas to three of its data centers, which entails transporting 900 MMcf/d through a specialized pipeline. Furthermore, a 20-year agreement with Entergy Louisiana has been established to transport significant volumes of natural gas to a facility in Richland Parish, aimed at supporting Meta’s new data center.
It’s key to note that Energy Transfer functions as a master limited partnership (MLP). This structure means investors receive a Schedule K-1 for taxes instead of a straightforward 1099, which could complicate tax filings. Still, it offers a solid dividend yield of 7.3% and is strategically positioned to meet the growing demand for natural gas.
Before investing in ExxonMobil or any stock, it’s wise to consider various factors, including the potential for growth and changes in market conditions.
