The energy sector can be challenging for investors. Oil price volatility is one of many sector-specific risks to navigate.
However, the energy industry also offers some compelling investment opportunities. Chevron (CVX -1.02%), Enbridge (ENB 0.14%), and Brookfield Renewable Partners (BEP 10.90%) currently stand out to a few Fool.com contributors as smart stocks to buy for investors with $1,000 of idle cash to deploy.
Focus on Resilience
Reuben Gregg Brewer (Chevron): The energy sector is best described as volatile and perhaps even unpredictable. That's a problem for investors who want long-term exposure to the space. Since bottoming out in early 2020, energy prices have spiked and started to retreat again.
Where they'll go next is anybody's guess, but a recession, which many people expect to occur in 2023, would likely lead to further oil and natural gas price declines. Investors should probably be erring on the side of caution with an integrated energy giant like Chevron, which has a $300 billion market cap.
But Chevron isn't just big; it also has one of the strongest balance sheets among its closest peers. This is important because during energy downturns, the company's low leverage allows it to take on debt so that it can continue to run its business and pay shareholder dividends.
Notably, the dividend, despite the highly cyclical nature of the energy industry, has been increased annually for 36 consecutive years. The dividend yield is roughly 3.7% today.
Meanwhile, if energy prices were to surge, Chevron's business would quickly benefit. That's true of any energy stock for which the top and bottom lines are dependent on energy prices. But Chevron gives you the protection of financial strength and a proven ability to weather downturns. Simply put, you would be able to focus on the dividends you are collecting in tough times instead of stressing about the stock price.
If you want to add energy exposure to your portfolio, Chevron is an excellent safety-first option during uncertain sector conditions.
Lots more income ahead
Matt DiLallo (Enbridge): Enbridge has a long and illustrious history of growing value for its investors. The Canadian energy infrastructure behemoth has increased its dividend for 28 straight years. That's helped power industry-leading total shareholder returns. Since 2008, Enbridge has delivered an average annual total return of 11.4%, outpacing its midstream peers (8.3%) and the S&P 500 (8.9%).
Enbridge has ample power to continue growing shareholder value. The company generates enormous recurring cash flows backed by long-term contracts and government-regulated rate structures. It pays 60% to 70% of that money to shareholders via dividends.
That payout currently yields an attractive 6.7%, partly due to a lower share price (Enbridge's stock is more than 15% off its 52-week high). Enbridge could turn a $1,000 investment into a $67 annual passive income stream at that rate.
The company's reasonable dividend payout ratio allows it to retain billions of dollars in cash flow each year to fund its continued expansion. It also has a solid investment-grade balance sheet, giving it additional capacity to fund organic expansions and accretive acquisitions.
Enbridge has an extensive expansion project backlog currently under construction and more projects in development, giving it lots of visibility into future growth. Enbridge expects to grow its distributable cash flow per share at around a 5% annual rate over the next several years. That should support annual dividend growth up to that level.
Enbridge looks like a smart place to invest $1,000 these days. It trades at an attractive valuation and dividend yield, and it should continue growing its earnings and payout at a decent pace in the coming years.
A rock-solid dividend growth stock
Neha Chamaria (Brookfield Renewable Partners): Shares of Brookfield Renewable Partners are up almost 20% so far this year as of the time of this writing, but the stock is still more than 25% away from its 52-week high and down about 16% in the past 12 months.
Also, it has underperformed shares of its corporate entity, Brookfield Renewable Corporation (BEPC 10.63%), in the past year for no apparent reason. If you ask me, investing some money in shares of the partnership right now could be a brilliant move.
Brookfield Renewable Partners just released its first-quarter numbers, and they were impressive yet again. The company's net loss more than halved, and funds from operations jumped 13% year over year in Q1.
Brookfield Renewable is also firing on all cylinders in terms of growth, having already committed investments worth nearly $8 billion so far this year. Growth moves include a deal to buy Origin Energy, a major integrated electricity generator and energy retailer in Australia. Brookfield Renewable aims to retire the company's coal plant -- also Australia's largest coal plant -- and build renewable energy assets.
Brookfield Renewable also invested in India last quarter.
The renewable energy giant has a huge asset base, a massive pipeline, and a robust balance sheet to support growth as well as dividends. Brookfield Renewable's dividend per share has grown at a compound annual growth rate of 6% since 2014, and management is committed to growing dividends by 5% to 9% annually in the long term.
Throw in the stock's dividend yield of 4.5%, and investors who buy Brookfield Renewable shares today can easily expect double-digit annual total returns from the stock.
