Strong crude oil prices have once again brought investors' attention to energy stocks that have long been underperforming. The West Texas Intermediate crude oil price has largely been above $90 per barrel since the beginning of March. Such strong prices are allowing top oil companies to churn billions of dollars in profits.
Although crude prices tend to be volatile, the energy sector offers some of the best dividend opportunities. Here are two stocks that have delivered solid dividend growth consistently over the years, irrespective of oil prices.
1. Chevron: 3.6% dividend yield
Integrated oil giant Chevron (CVX 1.46%) is a great option for investors looking for a regular dividend stream in addition to exposure to oil prices. As an oil and gas producer, Chevron stock offers you a way to capture an upside in oil prices. At the same time, it generates a solid, stable dividend income.
In the second quarter, Chevron's adjusted earnings jumped to $11.4 billion -- from $3.3 billion in the same quarter last year -- due to higher oil and gas prices and higher production. Here's how much higher the prices were: Chevron's average sales price for crude oil was $89 per barrel, compared to $54 per barrel in the year-ago quarter. Similarly, the average sales price of natural gas rose to $6.22 per thousand cubic feet, up from $2.16 in the same quarter last year.
At the same time, Chevron's net oil-equivalent production was up 36,000 barrels per day during the quarter compared to the same quarter last year. Increased output, combined with higher prices, contributed to Chevron's earnings growth. What's more, higher margins on refined product sales benefited the company's downstream segment too.
Although Chevron's stock price may fluctuate based on movements in oil prices, the company has a solid history of consistent dividend payments. In fact, with steady dividend increases for over 25 years, Chevron is a Dividend Aristocrat.
Despite the growth in renewable energy sources, it is widely accepted that oil and gas are expected to be an integral part of the energy mix for the coming several decades. In short, this is one stock that you would happily hold for the rest of your life.
2. Enterprise Products Partners: 7.1% yield
Pipeline operator Enterprise Products Partners (EPD 0.07%) offers an eye-popping distribution yield of 7.1%. What's more, the company's operations are conservatively managed, which makes it less risky than its high yield may suggest.
In the second quarter, Enterprise Products Partners' distributable cash flow (DCF) grew 30% over the same quarter last year. Higher natural gas processing margins, higher volumes, and earnings from Navitas Midstream's assets contributed to the DCF growth.
Operating in the midstream space, Enterprise Products Partners' earnings are not directly linked to oil and gas prices. However, the company still benefits from higher volumes and margins when the commodity prices are higher. On the other hand, Enterprise's earnings are relatively resilient when commodity prices fall. That explains the company's consistent distribution growth for 24 consecutive years.
Moreover, Enterprise Products Partners' DCF covered its distribution by 1.9 times in the second quarter. Importantly, the company's distribution coverage has historically been well above 1. A ratio above 1 indicates that the company generated enough distributable cash flow to cover its distribution payments. A higher ratio is better, as it shows that a company won't face issues in making distribution payments, even if cash flows fall a bit.
In the first half of 2022, Enterprise Products Partners spent $3.9 billion on capital projects, including $3.2 billion for Navitas Midstream's acquisition. It spent $576 million on organic growth projects. The company expects this spending to be $1.6 billion for 2022, which means it could be investing roughly $1 billion on growth projects in the second half of this year. Overall, the company currently has $5.5 billion of growth projects under construction. These should help fuel its distribution growth in the coming years.
In all, Enterprise Products Partners stock can provide you with a solid income stream for the rest of your life.