If you have $5,000 to spare right now, it makes a lot of sense to invest this money in stocks that can provide you with regular and growing dividend income over the next several years. Three stocks in the energy space that offer reliable dividend income are Chevron (CVX 3.06%), TC Energy (TRP 1.75%), and Enterprise Products Partners (EPD 1.46%). Though these stocks could be a bit volatile in the short term, they can generate solid dividend income in the long run along with decent capital appreciation. Let's see why each of these stocks makes a great addition to your dividend portfolio.
A Dividend Aristocrat, Chevron is right now the most attractive stock among integrated oil and gas majors. It easily beats its top peers in terms of balance sheet strength, and boasts the lowest debt-to-equity and debt-to-capital ratios among its peers.
Like its peers, Chevron incurred a loss last year. Low oil and gas prices impacted the company's upstream performance, while lower gasoline demand dented its downstream earnings. Despite the challenges, Chevron's production rose 1% to 3.08 million oil-equivalent barrels per day in 2020. The company also added 832 million barrels of net oil-equivalent proved reserves during the year, contributed by Noble Energy acquisition and assets in Kazakhstan.
At the same time, Chevron continues to sell some of its less strategic assets. In 2020, it generated proceeds of $2.9 billion from asset sales. In the last three years, it has generated $7.7 billion from asset sales, in line with its guidance. Chevron also reduced its 2020 capital spending by 35% from 2019 in response to market conditions.
So, Chevron is taking steps to reduce operating expenses and preserve capital while investing in quality growth projects. This allowed it to increase production and add to its reserves while maintaining a strong balance sheet. That's a prudent approach in the current market environment. The company states maintaining and growing dividend as one of its top priorities. With a dividend yield of 5%, Chevron stock makes an alluring buy for income investors.
While many energy companies struggled last year, Canadian midstream giant TC Energy sailed through easily. The company's earnings for the year rose from 4 billion Canadian dollars in 2019 to CA$4.5 billion last year. Contributions from growth projects supported TC Energy's earnings growth last year. The company placed CA$5.9 billion of growth projects into service in 2020.
TC Energy makes a chunk of its earnings from regulated gas transmission operations. These utility-like earnings are largely stable, irrespective of commodity prices. Roughly 95% of TC Energy's earnings last year came from regulated or long-term contracted assets.
The volumes on the company's liquids pipelines are largely resilient due to their strategic locations. TC Energy's pipelines provide much-demanded takeaway capacity from Canada's oil sands to the markets along the Gulf Coast. Gulf Coast refineries are best designed to process this heavy and cheap crude oil. For that reason, despite the fall in refinery utilization rates last year, the demand for heavy crude -- and in turn TC Energy's pipeline capacity -- remained robust.
TC Energy has raised its dividend for 21 consecutive years, and the company has a projects backlog of around CA$20 billion. That, along with recently completed projects, should allow the company to raise its annual dividend by its expected range of 5% to 7% in the coming years. With an attractive yield of 5.6%, TC Energy stock is a great investment for a third of your $5,000.
Enterprise Products Partners
Enterprise Products Partners stock offers an appealing yield of 8% right now. The MLP posted resilient performance last year, despite turmoil in oil markets. That's because the company's main operations -- transport and storage of crude oil, liquids, and natural gas -- are not directly impacted by commodity price fluctuations, though prices and demand do impact its volumes, and therefore its earnings to an extent.
Enterprise Products Partners is conservatively managed. The company's debt-to-adjusted EBITDA ratio at the end of last year was 3.5 -- one of the lowest among its peers. Moreover, it's distributable cash flow for the year was 1.6 times its distributions (MLP-speak for dividends). So its payouts look solidly safe. The company has raised its distributions for 22 straight years.
A recovering demand for gasoline, natural gas, and other refined products means that this year should be better for the company than the last. Enterprise Products spent $3 billion on growth projects in 2020. The company's projects pipeline looks strong, with $1.6 billion of projects sanctioned for 2021. These should fuel Enterprise Products' distribution growth in the coming years.
A steadily growing distribution income well-supported by stable cash flows, an attractive projects backlog, and a strong balance sheet makes Enterprise Products Partners stock an enticing buy.