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Got $5,000? Here Are 5 Energy Stocks to Buy and Hold for the Long Term

By Rekha Khandelwal – Sep 24, 2021 at 7:24AM

Key Points

  • Chevron boasts a stronger balance sheet than its integrated energy peers.
  • Environmental concerns relating to oil production from Canada's oil sands are likely impacting TC Energy's stock price.
  • Valero Energy plans to quadruple its renewable diesel production capacity.

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These stocks together offer exposure across the entire oil and gas value chain.

Crude oil prices have been largely above $60 per barrel for nearly eight months now, and energy stocks have consequently recovered some of their last-year's losses. The S&P Energy Select Sector Index is up nearly 25%, outperforming the S&P 500 Index's 16% rise in 2021. Though energy-sector stocks tend to move with commodity prices, they offer solid dividend income for long-term investors.

If you're looking to invest $5,000 in energy stocks, you should do well by equally dividing the amount in the below five stocks. Involved in production, storage, transport, and refining activities, these companies offer broad exposure to the oil and gas market. They also offer attractive dividend yields ranging from 5.5% to 8.3%.


Among integrated energy companies, picking Chevron (CVX 0.59%) looks like a no-brainer. It has the most conservative debt ratios among globally integrated energy companies. Its debt-to-capital ratio of 24% is lower than ExxonMobil's ratio of 28%. By comparison, this ratio is far higher for BP, Royal Dutch Shell, and TotalEnergies.

Chevron's recent performance is superior to ExxonMobil, though that hasn't always been the case.

CVX Return on Invested Capital Chart

CVX Return on Invested Capital data by YCharts.

As the above graph shows, Chevron's returns on invested capital have exceeded that of ExxonMobil lately. Similarly, ExxonMobil's debt-to-capital ratio has been higher than that of Chevron for the last couple of years.

Chevron's stronger balance sheet gives it an edge over ExxonMobil today. With a dividend growth streak of 34 years, Chevron stock will make a solid addition to your energy portfolio.

Enterprise Products Partners

Pipeline operator Enterprise Products Partners' (EPD) stock offers an exciting dividend yield of 8.3%. While that kind of yield is usually associated with high risk, that doesn't seem to be the case here.

The master limited partnership has increased its distribution for 22 consecutive years. With a financial debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of nearly four times, Enterprise Products has the most conservative balance sheet among its peers. The company's fee-based contracts provide it with relatively stable cash flows, irrespective of short-term commodity price fluctuations.

Enterprise Products Partners posted strong performance in the second quarter, generating a distributable cash flow of more than 1.6 times the distributions for the quarter. The company expects to spend $1.7 billion on capital projects in 2021, which should continue to support its earnings growth.

Workers looking at a tablet.

Image source: Getty Images.

TC Energy

With a dividend yield of 5.5% as of this writing, TC Energy (TRP 0.33%) looks like a steal. The company generates utility-like cash flows from its regulated and long-term contracted assets. TC Energy has a projects pipeline of roughly 21 billion Canadian dollars, which should continue fueling its earnings growth. The company has increased its dividend for 21 straight years.

Rising environmental concerns may impact oil production from Canadian oil sands because producing oil from bitumen-based oil sands is believed to result in higher greenhouse gas emissions and use more freshwater than production from conventional sources. This likely explains TC Energy stock's high yield.

There are two factors to consider here, though. Canadian oil production has largely been on an upward trend, and that's been a longtime concern. Moreover, new pipeline projects are finding it difficult to get the needed regulatory approvals, which makes existing capacity -- like that of TC Energy's -- more valuable.

Overall, concerns relating to TC Energy look overblown, presenting an attractive opportunity to buy this stock right now.

Kinder Morgan

Kinder Morgan (KMI -1.50%) has come a long way from 2014, when the company had to cut its dividend due to high debt and low commodity prices. The company has steadily worked on strengthening its balance sheet since then. Its debt-to-EBITDA ratio has improved from more than 9 in 2016 to around 5 times now. It has reduced its net debt by more than $12 billion in six years.

At the same time, Kinder Morgan is steadily growing its dividend. In the second quarter, the company increased its dividend by 3% over the second quarter of 2020. Kinder Morgan generated distributable cash flow of $1 billion in the second quarter, up 2.4% year over year. Overall, the company looks well-positioned to grow in the long term.

An engineer working at night at a refinery.

Image source: Getty Images.

Valero Energy

Among refiners, Valero Energy (VLO -2.74%) looks interesting. In the second quarter, Valero reported an adjusted net income of $197 million, compared to an adjusted loss of $504 million in the pandemic-affected year-ago quarter. The company has one of the lowest debt-to-capital ratios among independent refiners.

Maintaining a strong balance sheet is among Valero's top priorities. It targets a net-debt-to-capital ratio between 20% to 30% in the long run. In addition to crude oil refining, Valero Energy is focusing on renewables. It intends to quadruple its renewable diesel production capacity by 2023. It's also focusing on other opportunities in the renewables segment, including carbon sequestration and renewable hydrogen.

Valero Energy's strong refining operations, strong balance sheet, and renewables operations make it a stock to hold for the long term.

Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

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