Investors often get so focused on their own country that they forget that there are other nations around the world with attractive stocks in them. If you are looking to diversify away from the U.S. just a little, here are three high-yield energy stocks that may be just right for your portfolio.
1. Not so far away
Enbridge (ENB 1.68%) is the first name on this list, but you don't have to look too far away to find it -- it's Canadian. The company is one of the largest midstream players in North America, with a huge $88 billion market cap. The bulk of its business is fee based, as it helps move oil and natural gas around the continent and world via its massive collection of pipelines, storage, and transportation assets. However, it isn't just a simple midstream player.
Image source: Getty Images.
While Enbridge generates roughly 85% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) from oil and gas pipelines, 12% comes from a natural gas utility and 4% is derived from a renewable power portfolio. So there's some diversification in the mix, with clean energy as a material focus for the future. Indeed, roughly a third of the company's current capital investment plans are earmarked for this segment despite its diminutive size in the portfolio today. Enbridge is essentially using its carbon-based business to shift along with the world around it. If that sounds like a good plan, you can collect a generous 6.1% dividend yield along the way from this Dividend Aristocrat.
2. Price sensitive
One of the big attractions with Enbridge is that the fee-based nature of its business helps shield investors from the ups and downs of commodity prices. However, if you actually want to get exposure to oil prices, then France's TotalEnergies (TTE 1.39%) could be for you. It has a $155 billion market cap and is one of the largest integrated energy companies on Earth. What's notable, however, is that like Enbridge, it has material plans to expand into clean energy. The goal is for the company to grow its "electrons" business to around 15% of the portfolio by 2030.
But the really interesting thing about this effort is that the company isn't planning to get out of the cash-cow oil and natural gas businesses. These two operations are expected to grow even as it builds out its clean energy bonafides. The focus will shift from oil to natural gas, which is viewed as a transition fuel to a cleaner future, but this is really an "all of the above" strategy, not a complete business overhaul.
The dividend yield today is a generous 5.2%, the highest of its comparable peer group. That said, there are a couple of things to consider dividend-wise. First, because it's a foreign company there are some tax issues related to the dividend, since France wants its pound of flesh just like Uncle Sam. Second, although TotalEnergies didn't cut its dividend during the pandemic like some of its peers, it also didn't raise it. So the stock is more about yield than dividend growth. But if you like the idea of owning a foreign integrated energy giant with a plan to grow both its clean energy footprint and its core energy business, it's probably the best game in town.
3. Regaining some trust
The last name on this list is Shell (SHEL 0.19%), which used to be known as Royal Dutch Shell. It recently simplified its corporate structure so that it is domiciled in just one country, the U.K. This is why the graph above shows such a short history for a company that's existed for well over a century. The yield is around 3.5%. However, the dividend was cut during 2020, which might turn some investors off of the name. That's understandable, but management promised to quickly get back to dividend growth, and it has lived up to that commitment.
The dividend cut, in fact, came at roughly the same time that Shell announced plans to transition toward clean energy. The two taken together really represent a business reset, as Shell, like peer TotalEnergies, looks to adjust with the world around it. For those more focused on dividend growth, it could be a good option. But there's a slightly different focus here, as Shell appears intent on shrinking its carbon business over time. Whether you see that as good or bad probably depends on your outlook for energy and your ESG focus, but it sets Shell apart from this group.
Three different options
Basically, each of these foreign energy companies is shifting toward the green future. But they are all doing so in their own ways. Enbridge is a high yielder with a stable history of dividend growth and plans to keep its long streak of annual increases going. TotalEnergies is protecting its dividend while it looks to transition its business, making it more of a high-yield oil/gas and clean energy play. Shell, meanwhile, is shifting away from oil in a business reset that has allowed it to quickly start to increase the dividend again after a cut, making it a dividend-growth oriented foreign integrated oil option.
