Investors often think that you need a lot of money to get started, but that's just not true anymore -- especially since many brokers will allow you to make free trades. So even if your budget is $100, you can still find some pretty interesting options. In the energy space, that list today includes Shell (SHEL 0.19%), Dominion Energy (D -0.51%), and Enbridge (ENB 1.68%).
1. A new-ish direction
In 2020 Shell made a major news announcement. It cut its dividend by two-thirds in the first quarter of that year. Oh, and it laid out plans to shift aggressively toward clean energy. Very few investors welcome dividend cuts, so that move overshadowed the big picture here. Essentially, Shell is working to change with the times so it can remain a viable part of the energy landscape for decades to come.
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What's really notable is that, as the company explained its new plans, it highlighted that it wanted to quickly get back to dividend growth. It lived up to that goal by increasing the dividend slightly in the third quarter of 2020. It has increased the dividend a couple of more times since that point as well. The dividend has now grown by 50% since the cut. It is always a good thing when management lives up to its stated goals, which in this case also include investing heavily in clean power. Shell's dividend yield is just shy of 3% today, as the stock has rebounded along with oil prices. However, for investors looking for a generous and growing dividend in the energy space, the stock and its sub-$100 share price is a good starting point.
2. Focused on basics
Dominion Energy also made some notable changes to its business in 2020, selling its midstream pipeline assets to Berkshire Hathaway. That move also came with a dividend cut -- in this case the company trimmed the payout by around 33% (which corresponded roughly to the size of the division it sold). However, the business reset left Dominion to focus on its boring but reliable utility operations.
The key here is the Dominion is a regulated utility, so it has a monopoly in the regions it serves. It has to get its rates approved by state regulators, though. Those rates are typically predicated on spending a set amount of capital with a specified rate of return. Because rates and capital spending are so tightly tied together, Dominion's $37 billion five-year investment plan is highly likely to take place no matter what is going on in the world around it, or on Wall Street. So the company's plan for annual dividend growth of around 6% looks to be on solid ground. For reference, the 6% hike in early 2022 was the first increase since the cut, so management is now starting to live up to its long-term objectives. The current dividend yield is around 3.1%.
3. Tolls pay the way
The last name up is Enbridge, which offers by far the highest yield of this trio at 6%. The Canadian company operates one of the largest oil pipeline networks in North America, and one of the largest natural gas pipeline networks. These two businesses, combined, make up around 84% of the company's earnings before interest, taxes, depreciation, and amortization (EBITDA). These are fee-based businesses that are paid based on the use of the system, not the price of the commodities flowing through the pipes. They are very reliable cash generators, and so long as oil and gas remain in demand, which is likely to be the case for decades to come, they will help support the stock's fat yield. On top of that, another 12% of EBITDA is tied to a natural gas utility operation. This is a regulated business that is also highly reliable.
The interesting thing here is the final 4% of EBITDA, which comes from Enbridge's renewable power operation. Basically, it is using the reliable cash flows it generates from its oil and natural gas businesses to expand this division. Notably, around 33% of its capital investment budget is dedicated to renewable power today, so this is not an offhand comment or just a management distraction. Clean energy will be a core part of Enbridge's future, just like it will be for the world at large. Investors, meanwhile, can collect that fat, well supported dividend while they let management do the heavy lifting of growing the clean energy division. And all for under $100 a share.
Time for a deep dive
These three companies play in very different spaces. Shell is an oil giant shifting in a green direction, but commodity prices still play a big role in its performance. Dominion Energy is basically just a boring utility, which conservative types might prefer. Both have similar yields and plans to get back on the dividend growth track. Like Shell, Enbridge is looking to clean up its act, but has a larger yield and a more stable fee-based business. For those looking to maximize their income streams, it could be the best option of the bunch. All of these dividend stocks, meanwhile, trade for under $100 a share.
