After a scorching start to the year, oil prices have cooled off a bit in recent weeks. Crude oil prices have fallen from over $120 a barrel at the beginning of June to a recent range in the low $90s. Because of that, oil companies aren't making quite as much money as they were earlier this year.
However, several oil companies are still thriving even with the recent cooldown in crude prices. Three oil stocks that stand out to our energy contributors for their ability to prosper even if oil prices keep falling are Enterprise Products Partners (EPD 0.73%), Devon Energy (DVN 1.61%), and Enbridge (ENB 1.04%).
Happily collecting more tolls
Reuben Gregg Brewer (Enterprise Products Partners): Enterprise Products Partners is in the midstream niche of the energy sector. Effectively, the master limited partnership's (MLP's) collection of infrastructure assets help to move oil and natural gas from where they are drilled to where they eventually get used.
It's a fairly boring business that is driven by the usage fees Enterprise collects from its customers. Commodity prices just aren't that big a deal, so oil prices dropping isn't likely to be a huge headwind here.
That said, demand for energy is a big deal, since it will dictate how much oil and natural gas flows through Enterprise's system. On that front, the partnership recently reported second-quarter 2022 earnings. Volumes were up year over year in five of seven business lines. And the two where volume declined experienced just modest drops of 3.5% and 1.5%. Meanwhile, the partnership's distributable cash flow increased 30% year over year, hitting a record $2 billion.
Even if Enterprise's performance cooled off for some reason, like an economic slowdown that resulted in reduced energy consumption, its distributable cash flow covered the distribution by a huge 1.9 times in the second quarter. That provides a lot of leeway for adversity.
Enterprise currently offers a generous 7.4% distribution yield backed by over two decades of annual increases. Income investors worried about energy prices should consider sidestepping the issue and do a deep dive into this toll-collecting energy name.
Adding another growth driver
Matt DiLallo (Devon Energy): Oil producer Devon Energy has thrived on higher oil prices this year. The company's operating cash flow has doubled over the past year, hitting $2.7 billion in the second quarter. With the oil company keeping a tight lid on capital spending, free cash flow grew to a record $2.1 billion in the quarter.
Devon Energy returned about half its free cash flow to shareholders through its fixed-plus-variable dividend framework. The total dividend outlay increased by 22% in the second quarter to a record $1.55 per share, implying a more than 10% annualized dividend yield at the current stock price.
Devon also repurchased more stock -- retiring 4% of its shares outstanding since launching its current program -- and strengthened its already top-notch balance sheet by growing its cash balance by $832 million to $3.5 billion.
The oil company's financial strength has enabled it to make two needle-moving deals. It purchased the leasehold interests and related assets of RimRock Oil and Gas in the Williston Basin for $865 million. Meanwhile, it recently agreed to acquire Eagle Ford producer Validus Energy for $1.8 billion.
Both deals will significantly boost its cash flow. This allowed Devon to increase its base dividend payment by 13% upon closing the RimRock deal. The company anticipates its variable payout rising by 10% when it completes the Validus acquisition.
These dual deals will help offset the impact of the recent cool-off in oil prices. This means Devon should be able to continue paying an attractive dividend and repurchasing a meaningful amount of its stock. Meanwhile, with its balance sheet remaining in tip-top shape, Devon has the flexibility to acquire more cash-gushing oil assets if additional opportunities emerge.
A reliable income stream for volatile times
Neha Chamaria (Enbridge): If the recent reversal in oil prices after a heady rally has got you worried, Enbridge is the kind of stock you'd want to pay attention to.
Here's the thing: Enbridge is a midstream oil and gas company that serves its consumers under long-term, fee-based contracts and can therefore generate steady, stable cash flows most of the time. That works in investors' favor in two ways: It helps support Enbridge's stock price, as well as regular dividends.
Or wait -- that's an understatement: Enbridge hasn't just paid regular dividends for decades but has increased its dividend payout every year for the past 27 consecutive years. In a way, that dividend streak is testimony to Enbridge's resilience in a volatile industry. Its resilient business model is also why Enbridge can confidently outline financial goals for the midterm.
Between 2021 and 2024, Enbridge expects to grow its distributable cash flow (DCF) per share by a compound annual average rate of 5% to 7%. That includes projected growth of 8% for this year. The Canada-based oil and gas giant has a solid, growing pipeline of projects to support its cash flow and dividend growth. It already had projects worth $10 billion in Canadian dollars under progress and added another CA$3.6 billion worth of projects in the second quarter.
Needless to say, investors in Enbridge needn't worry about oil prices, as they should continue receiving fatter dividend checks from the company every year -- even as they currently enjoy a solid yield of 6.1% from the stock.