Earnings of oil and gas stocks tend to be unstable thanks to the volatility in oil prices. But there are companies in the energy sector that generate relatively stable income, regardless of oil prices. Companies operating in the midstream segment -- providing infrastructure such as pipelines and storage terminals -- are generally more insulated from the vagaries of commodity prices than oil and gas producers.
Here are three such companies that have a solid track record of generating stable cash flows and look well placed to continue doing so in the years to come.
Steady cash flows
Enbridge (ENB 1.68%), Enterprise Products Partners (EPD -0.41%), and ONEOK (OKE 0.53%) have been growing their cash flows steadily over more than two decades.
ENB Cash from Operations (TTM) data by YCharts
The relative resilience of all three companies' respective cash generation stems from the nature of their operations. The companies' earnings largely come from long-term, fee-based contracts based on the commodities transported or stored. The fee is largely not dependent on oil or gas prices. In some cases, the contracts also have a minimum volume commitment. Under such contracts, the customer pays a penalty if the volumes transported are less than the committed volumes.
Additionally, diversified and strategically located assets contribute to the stable performance of Enbridge, Enterprise Products Partners, and ONEOK. Steady cash flows allowed these companies to pay a growing dividend to their shareholders.
ENB Dividend Per Share (Quarterly) data by YCharts
Each company has been raising its dividend consistently for more than two decades. The companies didn't cut their respective dividends even during the 2008 financial crisis, 2014 commodity price downturn, or the COVID-19 pandemic. This speaks volumes about the relative resilience of the earnings of all three companies.
Oil demand is here to stay
Sure, past performance doesn't guarantee similar performance in the future, especially given the rising use of renewable energy. However, it is important to note that despite the expected growth in renewable energy, oil demand is expected to continue rising, albeit slower than in the past.
Image source: Statista.
According to data from the International Energy Agency, global oil demand will rise back steadily and exceed its 2019 levels of nearly 100 million barrels per day in 2023. Moreover, it will continue rising beyond that as well. In the long term, demand from the petrochemicals industry is expected to drive continued growth in oil demand.
That means midstream companies with a strong asset footprint will likely continue to generate rich cash flows in the future too. In short, whatever your expectations for oil prices may be, you can expect Enbridge, Enterprise Products Partners, and ONEOK to continue paying you solid dividends.
