It's for difficult economic environments just like this one that investors buy dividend-paying stocks. When uncertainty abounds, having a portfolio that can produce a steady stream of income regardless of how the market performs can be reassuring.
Still, choosing your investments carefully is a must, because as we've just witnessed, many companies that looked solid before the pandemic have slashed their payouts this year -- or suspended them altogether.
Although the COVID-19 outbreak severely impaired the energy industry, the two companies below have held steady throughout the crisis. Both have had their doubters, but perhaps in part because of that, they're good stocks to buy now.
Cheniere Energy Partners
Master limited partnership Cheniere Energy Partners (CQP -1.67%) operates the Sabine Pass liquefied natural gas (LNG) export terminal in Louisiana on the coast of the Gulf of Mexico.
A subsidiary of Cheniere Energy, the country's largest LNG producer, the company has been hit hard by the coronavirus. The pandemic caused a sharp drop off in demand for the fuel as countless businesses worldwide shut down. As a result, U.S. LNG exports tumbled by more than 60% in 2020 to 3.1 billion cubic feet per day (cf/d) in July, the same levels they were at in May 2018, when that was close to the country's export capacity.
Although demand will remain lower than normal, exports are forecast to start rising this month and continue heading upward throughout the rest of this year and 2021 before hitting 7.3 billion cf/d. Last year, exports at one point hit an all-time record of 8.0 billion cf/d.
Shares of Cheniere have nearly doubled from their March lows, but still remain 30% below their 52-week high because of the company's relationship to the energy industry, although it's really an infrastructure play. It does carry a high debt burden -- and will continue to as long as projects are in construction -- and that's reflected in its dividend of $2.58 per share, which right now yields almost 7.5%.
Yet there is some pricing protection for Cheniere in that its customers must either accept delivery of the LNG or pay a fee, and with demand sure to rise as countries reopen their economies more fully, the company's future still looks bright.
ExxonMobil (XOM 1.15%) was affected by the same factors as Cheniere, which sent crude oil prices tumbling. The U.S. Energy Information Administration has predicted that 2020 could be the worst year in the history of global oil markets.
After crude oil prices rebounded sharply over the summer, U.S. benchmark West Texas Intermediate is falling again, and ended last week down by 4.2% to $39.64 a barrel for October delivery.
ExxonMobil rises and falls with market sentiment, but it should benefit from increases in energy demand as paused economic activities gradually resume. In the meantime though, management is working to protect the company's balance sheet -- which also features significant debt, though it considers it "competitive" -- and its dividend, which it has paid for more than a century and raised annually for the past 37 years.
To bolster its finances, Exxon curtailed and delayed deepwater oil projects in Guyana and Brazil, as well as those in Permian Basin shale, and gas exports from Mozambique and Papua New Guinea -- moves that surprised analysts. "I don't think it's a fundamental change," Senior VP Neil Chapman told analysts. "I think it's a response to the short-term environment."
Exxon's stock is down by almost 50% from its recent highs, and it has only recovered by around 20% from its March lows. However, its dividend is yielding 9.2% now, and there's no sign the oil giant has any intention of touching it.