If you are looking for high-yield stocks in the energy sector, you can easily find more than a few options. The problem is finding options that you'll actually want to own.
TotalEnergies (TTE 1.10%) is a high-yield energy major with a business that's increasingly expanding in clean energy. Enbridge (ENB -1.21%) is a North American midstream company with an incredible dividend history behind it.
And Devon Energy (DVN 0.19%) has a high yield, but it is backed by a variable dividend policy that limits the number of people who should own it. Here's a closer look at each.
TotalEnergies is the punt option
With a 4.5% dividend yield, TotalEnergies is one of the highest-yielding options in the integrated energy space, where the companies own assets across the energy value chain, including production, midstream, and refining assets.
It provides some balance to the company's performance, since refining businesses tend to benefit when oil prices are low. To be fair, volatile commodity prices will still be the major determinant of top- and bottom-line results, but TotalEnergies will usually be fairly resilient through the inevitable downside of the energy cycle.
That said, there are other well-known energy options you could choose, like ExxonMobil or Chevron. But they have lower yields and neither has embraced clean energy like TotalEnergies has. In fact, the company has even begun to break out its electricity/clean energy business, which is around 7.5% of business-segment net operating income.
And while BP and Shell have also been investing in clean energy, they both cut their dividends at roughly the same time that they announced the strategic shift. TotalEnergies has not cut its dividend even as it invests more heavily in clean energy.
If you are looking for a high-yield energy major with a bit of a clean-energy hedge, TotalEnergies is the stock for you.
Enbridge is focused on reliable growth
Toll-taker Enbridge is focused on the midstream sector, but it shares one big similarity with TotalEnergies. It, too, is looking to follow the world in a cleaner direction.
That is happening in two ways. First, Enbridge has been investing in natural gas (considered a transition fuel) and limiting its investment on the oil pipeline side of its business. Second, although still quite small, it is building out a clean energy portfolio. The key to all of this is that most of its assets are fee based or contract driven, so the cash flows Enbridge generates are highly reliable.
This is why the Canadian company has been able to increase its dividend annually for 28 consecutive years. Right now, the yield is a very attractive 7.5%, which is near the high end of the historical range here.
As for the future, the company just inked a deal to buy three regulated natural-gas utilities, which will provide years of capital investment opportunity backed by highly predictable returns. If you are looking to maximize your income stream, and like slow and boring investments, Enbridge will likely be a good choice for you.
Devon is an acquired taste
There is nothing wrong with Devon Energy's business. It is a low-cost energy producer with ample opportunity to sustain its production, if not grow it.
The problem stems from the fact that it is a pure-play energy producer with a variable-dividend policy. So not only are its revenue and earnings inherently volatile, but so, too, is its dividend, which rises and falls along with financial performance.
DVN dividend per share (quarterly); data by YCharts.
The 6.3% dividend yield might seem attractive, but you can't count on that figure because the dividend payment will change. That might interest an investor looking for a hedge against real-world energy prices (the dividend will likely be heading higher at the same time that heating and gasoline costs are rising), but if you want a consistent income stream, it will be an option you'll want to avoid.
Long-term dividends in the energy patch
TotalEnergies and Enbridge are both heavily reliant on carbon fuels today and thus are clearly energy investments. But these two high-yield stocks have a subtle twist, in that they are using the cash flows from dirty fuels to help fund investment in cleaner fuels, including renewable power. If you are looking for a long-term investment in the energy sector, they could both be strong high-yield candidates for you.
Meanwhile, Devon Energy's high yield might look enticing relative to other energy options, but its energy-linked business and variable dividend policy ensure that the payout will be volatile.
