Oil prices can fluctuate wildly. That has certainly been the case in recent years. Crude went from crashing into negative territory during the early days of the pandemic to skyrocketing into the triple digits following Russia's invasion of Ukraine.
This volatility can keep investors away from the oil patch. However, some oil stocks can thrive amid all the volatility. Three great oil stocks to own for the long haul are Enbridge (ENB -0.29%), Magellan Midstream Partners (MMP), and Enterprise Products Partners (EPD 0.36%).
Insulated from oil price volatility
Matt DiLallo (Enbridge): Enbridge operates the world's largest crude oil transportation system. The Canadian pipeline company moves 30% of all the oil produced in North America. In addition, it operates natural gas transmission, distribution, and storage assets and has a renewable energy business.
Enbridge's focus on operating energy infrastructure insulates it from oil price volatility. The company generates 98% of its revenue from stable cost-of-service and fee-based contracts, which provides it with predictable cash flow in all market cycles.
The company also has a long history of delivering steady growth. Enbridge currently expects to increase its cash flow per share at a 5% to 7% annual rate through at least 2024. It has a large backlog of expansion projects to fuel growth, including new oil and gas pipeline expansions and renewable energy projects. Enbridge has ample financial flexibility to fund these investments thanks to its strong balance sheet and reasonable dividend payout ratio.
That combination of a solid financial profile and steadily rising cash flow should enable Enbridge to continue growing its 5.8%-yielding dividend. The pipeline company has increased its payout for 27 straight years.
Enbridge's attractive dividend and visible growth prospects should help it continue growing value for its shareholders in the coming years. That makes it a great oil stock to hold amid what will likely continue to be a volatile time for oil prices.
Diversifying off its core
Reuben Gregg Brewer (Magellan Midstream Partners): There's more than one way to skin a cat, as the old saying goes. Or in the case of Magellan Midstream Partners, invest in oil. Roughly 30% of the master limited partnership's (MLP) operating margin comes from moving oil with the rest tied to refined products, which are basically the things into which oil gets turned (like gasoline and jet fuel, among others). But the real key here is that the vast majority of its revenue is tied to the use of its assets, not to the price of oil. So, demand is the big issue, not commodity prices.
Meanwhile, investors get to collect a huge 8.2% distribution yield. That distribution, meanwhile, has been increased annually since Magellan's initial public offering (IPO) in 2001. That's a more than two-decade streak, including during pandemic-hit 2020 when oil prices plunged because demand for the fuel was relatively weak. In other words, Magellan took that hit in relative stride.
A big part of the MLP's strength comes from its balance sheet. Magellan's debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) is roughly 3.6 times. That's toward the low end of the midstream peer group, which is right about where Magellan always sits. That conservative fiscal stance gives management breathing room in difficult times. And it should make even the most risk-averse investors willing to step aboard this oil-tied midstream name.
This 7%-yielding stock won't disappoint you
Neha Chamaria (Enterprise Products Partners): Two factors make Enterprise Products Partners the kind of stock any oil and gas investor would want to own regardless of what oil prices do: It is one of the largest midstream energy companies in North America, and it has a long history of raising its dividend.
As a midstream company, Enterprise Products Partners earns fees from transporting natural gas, crude oil, petrochemicals, and refined products, all of which have important end uses in several industries, some of which are essential to daily life. And the company earns these fees under long-term contracts. So whether oil prices are falling or rising, Enterprise Products Partners often operates as usual and continues to generate steady cash flows.
That's also why you can rely on this stock to earn you decent passive income at all times. Enterprise Products Partners, in fact, has increased dividends every year for 23 consecutive years.
Enterprise Products Partners recently made headway into the Midland Basin, part of the Permian Basin, by acquiring Navitas Midstream Partners and its natural gas assets, and had projects worth $2.2 billion under construction as of the end of 2021, including a propane dehydrogenation plant with high capacity to upgrade propane into an essential petrochemical. These are strong growth moves, and with the stock also yielding a hefty 7.2%, Enterprise Products Partners is a great oil stock to own.