There are a lot of stocks that fall under the broader energy category, but investors looking for dividend income should probably be selective in the sector. That means focusing on more than just big, fat dividend yields and taking a deeper dive into a company's business. When you do that, Enterprise Products Partners (EPD 0.45%), ExxonMobil (XOM -2.78%), and Brookfield Renewable (BEP 0.19%) (BEPC 0.09%) are all likely to be standout investment ideas. Here's a quick look at each.
1. Enterprise Products is a slow and steady income stock
Enterprise Products Partners has a distribution yield of around 7.5% today. That is attractive on an absolute level, and it's near the high end of the master limited partnership's (MLP's) yield range over the past decade. For those seeking to maximize the income their portfolios generate, it is a very good option.
That said, it is the business behind the yield that's most attractive. Enterprise owns pipelines and other midstream assets that help to move oil and natural gas around the world. It is among the largest midstream companies in North America, with a portfolio that would be difficult, if not impossible, to replicate. The MLP charges fees for the use of these assets, which tends to generate reliable cash flows in both good energy markets and bad ones. In other words, energy price volatility isn't that big of an issue here, making Enterprise appropriate for even more conservative investors.
The reliability of this investment-grade-rated business is highlighted by a 25-year streak of annual distribution increases. The high yield is likely to represent the lion's share of an investor's returns, but if income is your goal that probably won't be a big problem for you.
2. Integrated energy giant ExxonMobil is rolling things up
ExxonMobil is huge, sporting a market cap of roughly $415 billion. The dividend yield is about 3.8% today, and the dividend has been increased annually for 41 consecutive years. On top of that, the integrated energy giant has a long history of operating with a conservative amount of leverage, which allows it to more easily weather industry downturns in the historically cyclical energy sector. It is basically a reliable dividend-paying oil stock.
But there's an important benefit from ExxonMobil's size and diversification (geographically and within the energy value chain). It has the heft to make big acquisitions, effectively allowing it to act as a consolidator as oil and natural gas are slowly displaced by cleaner alternatives in the global energy market. Most recently it agreed to pay $64.5 billion for Pioneer Natural Resources (PXD -2.28%), giving it more exposure to important onshore U.S. energy production.
There's no way to know if more such deals will occur in the future, but if they do ExxonMobil is likely to be an important player. And if there comes a time when management thinks it is best to start buying clean energy assets, well, ExxonMobil will have little problem doing that too. If you are looking for more direct oil exposure, ExxonMobil is a tried and true giant.
3. Brookfield is growing in the clean energy sector
While Enterprise and ExxonMobil focus on the carbon fuel side of the energy sector, Brookfield Renewable is dedicated to helping the world go green -- and, along the way, rewarding investors with a generous and growing income stream. To put numbers on that, Brookfield Renewable Partners has increased its dividend annually for nine years and currently offers a yield of 6.2%. Brookfield Renewable Corp., which represents the same entity but is structured so investors that can't buy partnerships (like pension funds) can own it, has a yield of 5.7%.
Brookfield Renewable owns a globally diversified portfolio of hydroelectric, wind, solar, and power storage assets. The total capacity of what it owns today is around 32 gigawatts, so it is an important global energy producer. But what's more interesting is the 134-gigawatt pipeline of power projects it has yet to build. Over the next three years just 18 gigawatts of power are expected to be commissioned from that backlog, suggesting years of growth lie ahead. As that backlog gets built out, Brookfield Renewable should have more than ample capacity to continue growing the income investors collect in line with its 5% to 9% annual target.
Options abound for income investors in the energy sector
If you want to earn a high yield while avoiding commodity price risk, Enterprise is the investment for you. If you want exposure to oil and natural gas but also income consistency, then ExxonMobil should be the stock you prefer. And if you think carbon fuels are passe, take a look at high-yield Brookfield Renewable and its huge backlog of clean energy projects. All three have the potential to be rewarding income investments for years to come.
