The way oil prices and energy stocks tanked in 2020, who could have predicted the energy sector to not only rebound but emerge as the top-performing sector in 2021? It's been a thrilling ride for investors in energy stocks, and 2022 could be another solid year, especially for investors looking to earn some passive income from this sector. I'm talking about solid dividend-paying stocks that could be worth every penny in 2022 and beyond. Here are three such ultra-high-yield energy stocks, yielding as much as 8.3%, that are top buys as we step into the new year.
This 8.3% yield is safe and reliable
Enterprise Products Partners (EPD 0.48%) is not only the highest-yielding energy stock I'm recommending today, but also one of the finest stocks in the energy sector you could buy.
As a fully integrated midstream energy company with nearly 50,000 miles of natural gas, natural gas liquids, crude oil, petrochemical, and refined products pipelines, Enterprise Products' reach in the industry is like none other. Its scale and size, combined with majority fee-based cash flows, have worked really well in investors' favor: Over the years, Enterprise Products has been able to grow its cash flows steadily and increase dividends every year for 23 consecutive years.
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What's even more notable is that its dividends have grown at a really impressive compound annual rate of 6.9% over the 23-year period. That's no mean feat, especially for a company operating in a highly cyclical industry.
Now, the stock's sky-high yield of 8.3% has made some investors wary about its dividend sustainability. Fact is, Enterprise Products' distributable cash flow (DCF) covered its dividend 1.6 times in its last quarter, which means the company is generating enough cash flows to reinvest in growth and sustain its payout comfortably. At the current pace, it's highly likely Enterprise Products could end up generating record DCF in 2021, or at least close the year with its second-best DCF yet. That alone makes this energy giant's stock a solid buy for 2022.
A stock yielding 6% that's on its way to big things
TotalEnergies (TTE -0.32%) changed its name from Total in 2021 to mark its transition from a traditional oil and gas play to a broader, cleaner energy company. It's a smart move in the right direction, which is why TotalEnergies makes for such a compelling stock to own for any oil and gas investor who wants to bet on the future of energy.
By 2030, TotalEnergies expects oil and oil products to contribute just about 30% to its total sales. At the same time, it expects to generate nearly half its entire sales from cleaner sources of energy, including biogas, hydrogen, and liquefied natural gas. TotalEnergies also has ambitious plans to scale up its renewables and electricity businesses, such that it can become one of the world's top five renewable power producers by the end of the decade.
Having made such a big move in 2021, investors can expect big things from TotalEnergies starting in 2022. Top of the list should be its clean energy initiatives, especially in its renewables and electricity businesses, as that could largely decide the magnitude of growth in the company's cash flows going forward.
Assuming the price of oil averages around $50 per barrel, TotalEnergies' cash flows could grow by nearly $5 billion over the next five years, driven almost entirely by its clean energy initiatives. And a large chunk of that incremental cash flow should end up in shareholders' pockets in the form of annual dividend raises. Having used the recent rally in oil prices to repay debt, TotalEnergies is now also financially much better placed even as it begins to pump dollars into its transition and growth. Growth prospects are compelling, and with the stock also yielding a hefty 6%, there was never a better time than now to buy TotalEnergies shares for 2022 and beyond.
At a 7% yield, this energy stock holds a lot of promise
Enbridge (ENB 0.68%) is a rock-solid, bankable dividend stock, having increased dividends every year for 27 consecutive years. That's among the longest dividend growth streaks in the energy sector, and the best part is that Enbridge's dividend growth has been backed by steadily rising DCF. With the company setting itself up for a solid 2022, there's every reason you'd want to own this energy stock now.
2021 was a busy year for Enbridge as it put assets worth nearly 10 billion Canadian dollars into service and spent a little over CA$2 billion on new projects. With all that spending, the Canada-based energy giant now expects to generate DCF worth CA$5.20 to CA$5.50 per share in 2022, up 10% from its 2021 estimate DCF. Beyond 2022, Enbridge expects to grow DCF by 5% to 7% organically through 2024, which almost assures dividend increases coming up each year.
So what you have here is one of the nation's largest energy infrastructure companies that's growing steadily, doling out bigger dividends to shareholders year after year, and yielding a hefty 7% right now. With the company also already outlining growth plans through 2024, Enbridge is a solid energy stock to own for 2022 and beyond.
