Looking broadly at the energy sector, investors have a huge number of options. But three of the best right now might be Chevron (CVX 0.37%), Enterprise Products Partners (EPD 0.45%), and Black Hills Corporation (BKH -0.63%). If you are looking to add some energy exposure in January, here's a primer to get you started on each of these well-run dividend stocks.
1. Chevron has proven its ability to survive
When it comes to oil and natural gas, the one thing investors can count on is volatility. This is why Chevron is such a great choice, given that it has shown an incredible ability to navigate the industry's often deep ups and downs. To highlight that, the company has increased its dividend annually for 36 consecutive years.
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There are a couple of key factors here. First, Chevron's business is spread across the energy value chain, with operations in the production, processing, and distribution spaces. That helps to smooth out the industry's ups and downs. Chevron also has one of the strongest balance sheets in the sector, with a debt-to-equity ratio of 0.12 times. This is vital because it allows management to take on debt during industry downturns to keep funding the business and the dividend. When the energy market improves again, as it always has historically, leverage is reduced. It is a simple model but one that has worked out incredibly well for dividend investors. The yield is around 4% today.
CVX Debt to Equity Ratio data by YCharts
2. Enterprise is boring, and management likes it that way
While Enterprise is directly tied to oil and natural gas, the prices of those commodities aren't all that important to its business. That's because this midstream master limited partnership (MLP) acts as a toll taker, collecting fees for the use of its midstream infrastructure assets. Given its position as one of the largest pipeline operators in North America, its cash flows are very reliable. The proof of that is in the 25 years of annual distribution increases under its belt.
But the real attraction here is the distribution yield, which is a hefty 7.5%. That's going to make up most of an investor's total return, with only modest growth prospects ahead. However, dividend investors looking to maximize their current income stream probably won't find that a problem. The one concern might be the shift toward clean energy, though major industry watchers like the Energy Information Administration and the International Energy Agency agree that oil and natural gas are going to remain important for decades to come. If you can handle a bit of contrarian investing, Enterprise could be a great income investment for you in January.
3. Black Hills is a Dividend King
With a market cap of around $3.5 billion, Black Hills isn't a household name in the utility space, which falls into the broader energy sector. However, this electric and natural gas utility stands above the industry's largest players in one important way -- it is a Dividend King with over 50 consecutive annual dividend increases behind it. And the yield on offer today, around 4.6%, is near its highest point in roughly a decade. That suggests that now could be an attractive time to add the stock to your portfolio.
To be fair, rising interest rates forced Black Hills to focus on debt reduction over growth spending in 2023. But that should change over the next year or so, with capital investment picking back up to historical levels. Meanwhile, it is important to highlight that customer growth in the regions Black Hills serves has been growing at nearly three times the rate of the broader U.S. population. That should keep the utility's business on a growth path. Then there's the broader shift toward cleaner energy sources, which should provide ample investment opportunity to back the utility's rate increase requests well into the future. Black Hills is a boring foundational investment but one that should look fairly attractive today if you are a conservative investor.
Three solid dividend options in the energy patch
If you had to pick a theme for this trio of stocks, it would probably be a boring one. That's OK, however, because most dividend investors aren't searching for excitement. Chevron, Enterprise, and Black Hills have all proven they know how to pay investors well through good times and bad. If that sounds like something you want in your portfolio, then you should do a deep dive into each of these reliable income stocks in January.
