Looking at energy from the broadest possible perspective opens up a vast field of investment opportunities. All are not created equal, however, with some companies proving their value most by continuing to reward investors with reliable dividends even through the most difficult market conditions. That's why ExxonMobil (XOM 0.39%), Enbridge (ENB 0.20%), and The Southern Company (SO 0.37%), despite vastly different business models, are all energy stocks you'll be happy to own in a bear market.
1. Built for survival
Exxon is an integrated energy major, which means that its operations span across the oil and natural gas industry from production (upstream) to refining (downstream). Since refining benefits from low oil prices, this diversification provides some balance to the business. That's worthwhile because oil and gas are highly cyclical commodities. But, even with the company's broad portfolio of businesses, oil prices are still the biggest driver of Exxon's top and bottom lines. When oil is high, the company can log record profits, but when oil is in the dumps, red ink often follows.
And yet, despite the ups and downs, Exxon has increased its dividend annually for 41 consecutive years. An important aspect of this is the company's balance sheet, which is among the strongest of its closest peers. Basically, during the tough times, it has the leeway to add debt to fund its business and dividend. When good times eventually return, it pays down the debt. If you are looking to add an oil company and place a high value on dividend consistency, Exxon is one of your top options. The dividend yield is around 3.3% today.
2. Slow and steady
Canada's Enbridge is also highly reliant on oil and natural gas but in a very different way. This company owns pipelines and other infrastructure that helps to move these fuels around the world. It charges fees for the use of its assets, so demand for energy, which is fairly resilient even in bad markets, is the main driver of its performance. That's a key factor in its 28-year-long string of annual dividend increases.
There are a couple of things to keep in mind here. First off, Enbridge is more like a tortoise than a hare, so slow and steady is what investors should expect. Thus, the roughly 6.6% dividend yield will likely make up the lion's share of your returns here. Second, Enbridge is aware of the fact that the world is going green. It has been increasing its exposure to natural gas over the years because it is expected to be a transition fuel. And it is building a clean energy business, which only makes up 3% or so of earnings before interest, taxes, depreciation, and amortization (EBITDA) but is earmarked to see 20% of the company's capital spending for the foreseeable future.
Basically, Enbridge is using the reliable cash flows from carbon fuels to transition along with the world even as it pays a reliable dividend. That should probably interest income investors that are worried about oil's long-term future.
3. Boring but safe
If going anywhere near oil and natural gas isn't in the cards for you, then you might want to consider The Southern Company. It is one of the largest regulated utilities in the United States. And while its dividend has "only" been increased for 22 consecutive years, it has been held steady or increased for three-quarters of a century. If you like reliable, that's exactly what this company has been.
Energy is what supports modern life, so Southern's products are necessities, not options. As a regulated utility, the company is granted a monopoly in the regions it serves and must get its rates approved by regulators. And the utility's core mission is, ultimately, to provide reliable power in the growing markets it serves. If that all sounds boring, well, it is. But fairly strong relations with its regulators have led to years of reliable, albeit slow, growth along with its customer base. The gyrations of the stock market aren't likely to change any of that. And, given the dividend history, Southern's reliable business has clearly been a net positive for investors, too. It currently yields around 3.8%.
What about a CD?
With the rise in interest rates, investors can park their cash in a super-safe CD and earn very attractive interest without taking on any market risk. The problem with that is the CDs don't offer long-term growth opportunities, including both capital appreciation over time as a business grows and a rising dividend stream. If you are worried about a bear market, Exxon, Enbridge, and Southern have all proven they can survive such headwinds and continue to grow their dividends. In fact, even if Wall Street took off on a bull run, this trio would still be pretty attractive.
