Energy stocks have shown a strong performance over the last six months, largely due to a mix of constrained global supplies, careful capital investment, and surprisingly resilient demand. Oil prices are being bolstered by leading producers. OPEC and OPEC+ continue to manage their output carefully. There was a discussion about a mild production increase back in April, but U.S. shale companies are focusing more on shareholder profits than on ramping up production, which limits new supply. Despite this, consumption remains robust, thanks to stable economic conditions. However, geopolitical tensions in vital producing areas, especially the Middle East, have put upward pressure on oil and natural gas prices. It might be expected for prices to spike amid U.S. tensions with Iran. Still, the companies we’re looking at boast solid cash flows, growing dividends, and ongoing share buybacks, making them not overly priced. This scenario is drawing both passive income seekers and value investors back to energy stocks. While some of our preferred stocks have surged beyond the optimal buying range for most of the past year, the top five companies offering substantial dividends remain solid investment opportunities.
On the other hand, while the prices of major integrated conglomerates have risen significantly over the past six months and are now pricier than last summer, several other firms within the sector still present attractive entry points with reliable dividend yields that are likely to increase. We’ve delved into Wall Street’s constant energy database to unearth some high-yielding bargains. We’ve identified five stocks that genuinely deserve attention for investors seeking consistent passive income. Notably, all five are currently rated as “buys” by top Wall Street analysts.
Why target high-yield energy dividend stocks?
Since 1926, dividends have represented around 32% of the total return of the S&P 500, with capital appreciation making up the remaining 68%. Consequently, a stable dividend income alongside potential for capital growth are essential for realistic total return expectations. A study by The Hartford Fund in collaboration with Ned Davis Research showed that dividend stocks have yielded an annual return of 9.18% over the past 50 years (from 1973 to 2023). This is more than double the annualized return of non-dividend payers, which stood at 3.95% during the same period.
One notable company
This example is one of Europe’s leading integrated oil firms, offering a generous 5.14% dividend to its investors. BP plc (New York Stock Exchange: BP) operates globally in the energy sector.
It functions across:
- Gas and low-carbon energy
- Oil production and operations
- Customers and products
- Rosneft segment
BP’s operations include trading natural gas, supplying biofuels, managing both onshore and offshore wind and solar farms, and offering decarbonization solutions such as hydrogen and carbon capture. The firm is also active in the convenience and mobility sectors, overseeing the distribution of convenience items, aviation fuel, and Castrol lubricants, among others. Additionally, it refines, supplies, and trades petroleum products while also operating electric vehicle charging networks.
Moreover, BP is involved in the production and refinement of oil and gas as well as investments in upstream, downstream, and alternative energy sectors. Their investments also cover advanced mobility, biotechnology, low-carbon products, and various power and storage solutions.
Wolf Research has given an Outperform rating with a target price of $51.
Chord Energy
This company presents an innovative option, still providing investors with an attractive entry point and a high dividend of 4.93%. Chord Energy Corporation (NASDAQ: CHRD) is an independent exploration and production firm focused on acquiring, exploring, and producing crude oil, natural gas liquids (NGLs), and natural gas within the Williston Basin.
Their operations are centered in North Dakota and Montana, targeting significant formations in the Middle Bakken and Three Forks regions.
Chord Energy’s daily production is about 232,737 net barrels of oil equivalent.
The company operates approximately 4,824 gross producing wells (net 3,752.2) out of roughly 9,011 gross wells. They sell crude oil, NGLs, and natural gas to refiners and other clients via nearby pipelines and rail.
Piper Sandler rates the stock as Overweight with a target price of $151.
Energy Transfer
Energy Transfer stands as one of North America’s largest and most diversified midstream energy companies. This Master Limited Partnership is seen as a secure choice for investors seeking energy exposure, providing a distribution yield of 7.05%. Energy Transfer LP (New York Stock Exchange: ET) controls one of the largest energy portfolios in the U.S., strategically located across all major manufacturing hubs.
The company, as a publicly listed limited partnership, operates in various areas, including:
- Natural gas midstream, intrastate, and interstate transportation and storage
- Transportation and terminal facilities for crude oil, NGLs, and refined products
- NGL separation
- Various acquisition and marketing operations
Continuing on, Energy Transfer, which acquired Enable Partners in December 2021, possesses over 114,000 miles of pipeline and associated assets across 41 states, further solidifying its position in the midstream sector.
Through these operations, the company also owns Energy Transfer Working, LP (formerly Energy Transfer Partners, LP) and has interests in Lake Charles LNG Company alongside various public partner interests and standard units of Sunoco LP (New York Stock Exchange: SUN) and USA Compression Partners, LP.
TD Cowen rates the stock with a target price of $21.
TotalEnergies
TotalEnergies SE is a globally integrated energy and oil firm founded in 1924 and ranks among the world’s largest oil companies. This French giant presents a compelling option in the energy sector from Europe, offering a sizable dividend of 4.87%. TotalEnergies SE (New York Stock Exchange: TTE) engages in integrated oil and gas operations across the globe.
The company operates through four main segments:
- Exploration and production
- Integrated gas
- Renewable energy and electricity
- Refining, chemicals, marketing, and services
In its Exploration and Production segment, the company conducts oil and natural gas activities across roughly 50 countries.
Regarding Integrated Gas, the Renewable Energy and Power segment deals with:
- Liquefied natural gas (LNG) production
- Transportation, trade, and regasification
- Trading various natural gas and electricity products
- Natural gas transportation
- Electricity generation from diverse sources including natural gas and renewable options
- Energy storage and efficiency services
TotalEnergies also refines petrochemical products, trading crude oil and various petroleum goods while manufacturing and selling lubricants and fuel payment solutions. The company operates around 15,500 service stations.
Wolf Research assigns it an overweight rating with a price target of $83.
Western Midstream Partners
Surprisingly, this company boasts the highest yield in this listing, providing an 8.84% dividend, making it an appealing entry point. Western Midstream Partners, LP (New York Stock Exchange: WES) is engaged in developing and operating midstream assets.
The firm is involved in gathering, compressing, treating, processing, and transporting natural gas while also handling the transportation of natural gas liquids (NGLs) and crude oil. Moreover, they manage the collection and disposal of generated water.
Midstream assets are distributed across:
- Texas
- New Mexico
- Colorado
- Utah
- Wyoming
Additionally, as a natural gas processor, the company buys and sells natural gas as part of its operations. Their subsidiaries include:
- Western Midstream Operating GP, LLC
- Western Midstream Services LLC
- Western Midstream Services Holdings LLC
- Western Midstream Operating, LP
Mizuho rates the company with an Outperform and a target price of $46.
Consider this ETF
For those looking to avoid complications like a K-1 tax form, buying shares of the ALPS Alerian MLP ETF is an option (New York Stock Exchange: AMLP) that offers a practical dividend of 7.86%. Investors receive a 1099 form instead of a K-1, which is what they would get from Energy Transfer and Western Midstream.
