When uncertainty in stock markets rise, as it the case currently, one of the best ways to generate good returns is to go for quality stocks offering attractive yields. The direction in which the market will go from here is difficult to predict with certainty, but if you buy top stocks with attractive yields, you could be certain about a steady dividend income.
Three such stocks that look very attractive currently are Chevron (NYSE:CVX), Phillips 66 (NYSE:PSX), and Enterprise Products Partners (NYSE:EPD). Here's why you should take a look at them this month.
Strong operational performance at a conservative leverage
Chevron is trading at a very attractive yield of more than 5% -- the highest in more than three years. The stock's recent fall has pushed its yield higher. However, the company continues to perform well operationally. In 2019, Chevron's oil-equivalent production rose to the highest level in its history. Moreover, the company expects production to rise around 3%-4% over the next few years, with little or no increase in its capital budget.
That does not mean the company isn't adding to its reserves. In 2019, Chevron added around 494 million barrels of net oil-equivalent proved reserves. More importantly, the company has been able to consistently generate strong operating cash flows over the years.
What makes Chevron's growth impressive is its conservative leverage. Chevron's debt-to-capital ratio of 15.8% is one of the lowest among its peers. With 32 consecutive years of dividend increases, Chevron is one of the top energy stocks to add to your portfolio.
Phillips 66 is rightly credited as one of the top refiners in the U.S. The company has been able to grow earnings at a higher rate compared to its peers in the last few years. Advantaged crude inputs for its refineries, combined with a strategic placement of midstream assets around its refining footprint, have supported the company's growth. Phillips 66 is the largest purchaser of advantaged Canadian crude oil among its peers. It's refineries use the most Canadian crude, as a percentage of total crude, among major US refiners. This is important because Canadian crude oil sells at a significant discount to domestic oil.
In terms of output, Phillips 66 produces more distillate as a percentage of its total throughput. The refiner's coking capacity -- the capacity to convert low-value residual material in the refining process to higher value products -- is highest among its peers.
Similarly, Phillips 66's chemicals business also has an advantage in terms of sourcing feedstocks, especially low-cost ethane along the US Gulf Coast. The company's midstream and chemicals businesses provide it with some cushion, especially when the refining margins are stretched. While refining margins were weak in 2019, the IMO 2020 regulations should contribute positively to the margins.
An expected drop in crude oil prices, due to the effects of coronavirus, should also benefit refiners. Overall, the above factors make Phillips 66's 4.8% yield -- the highest since 2012 when the company was spun off from ConocoPhillips (NYSE:COP) -- very attractive.
Enterprise Products Partners
Like Phillips 66 and Chevron, Enterprise Products Partners' yield has also risen due to the recent drop in stock price. The MLP is currently offering a yield of around 7.6% -- the highest in more than three years.
Enterprise Products Partners has raised its distributions for 62 consecutive quarters. What's more, its pipeline of growth projects provides visibility for future growth.
The company uses cash generated from operations to fund its capital projects, and is no longer reliant on stock issuances to fund growth. This makes its growth independent of the stock price, which tends to be volatile at times.
Enterprise Products' huge fee-based asset base gives it a definite advantage over its competitors. A conservative leverage of 3.2 times debt-to-EBITDA and a strong distributable cash flow of 1.7 times of its distributions make Enterprise Products' yield reliable. What's more, the company is even able to make unit buybacks with the cash remaining after distribution payments.