During bull markets, when investors are feeling optimistic, it's easy for dividends to slide under the radar. But while the market is focused on share price appreciation, owning dividend stocks can offer investors a two-for-one deal.
Investors looking for dividend income can start with these three energy companies. Each finished down in 2023, missing the rally that drove most major indexes higher, but they're each positioning themselves for long-term success.
1. Chevron
Chevron (CVX 0.37%) is one of the largest oil companies in the world and continues to grow, thanks to the company's aggressive acquisition spree recently. In 2023, Chevron acquired PDC Energy for $7.6 billion, acquired Magnum Development, and agreed to buy Hess in a giant $60 billion deal (including debt) that's expected to close early this year.
Despite the moves, Chevron's stock finished down nearly 17% in 2023.
That indicates investors weren't necessarily jumping for joy with these moves, and part of that has to do with Chevron's revenue and cash flow slowing down last year due to lower oil prices. However, given the cyclical nature of the energy business, I believe the market may have been shortsighted and overreacted.
Chevron's recent acquisitions show it's positioning itself for the long haul. The PDC Energy acquisition is expected to add more than 1 billion barrels of oil equivalent proved reserves; Magnum Development is a partner in a project aiming to create the world's largest green hydrogen production and storage facility; and acquiring Hess further diversifies Chevron's portfolio and expands its reach in key markets like Guyana.
Chevron's quarterly dividend is $1.51, with a trailing-12-month yield of over 4%. Last year, Chevron's management announced it would recommend an 8% increase to its dividend. That would bring it to $1.63 per share quarterly, and bring the company's streak of increases to 37 consecutive years.
CVX Dividend data by YCharts.
The return on investment for Chevron's acquisitions won't be immediate, but its healthy dividend should give investors the patience to stick around for the long haul.
2. Enbridge
Enbridge (ENB -1.21%) is a Canadian oil and natural gas transportation and distribution company. It's one of North America's largest energy infrastructure companies, with a pipeline network that runs all throughout the continent.
Last year, Enbridge's stock dropped by around 9%. It made its own high-priced acquisition, buying three natural gas utilities from Dominion Energy for $14 billion, but investors weren't pleased, and the stock dropped by close to 6% on the day that deal was announced.
Investors' valid concern relates to how the deal adds more to Enbridge's debt level, which is already higher than is preferable. For dividend investors, that's even more concerning because they want to be sure the company will be able to continue to cover its current payouts and increase them. However, shareholders shouldn't have to worry about that with Enbridge.
Enbridge has increased its quarterly dividend for 29 straight years, and should maintain that streak. With a dividend yield of around 7.3% ($0.67 per share quarterly), it's one of the more lucrative payouts you can find. The company has also hiked its dividend at a compound annual rate of 10%.
The company's debt shouldn't be ignored, but its focus is on growing its scale and positioning for the future. Investors might not have liked the Dominion Energy deal, but it made Enbridge North America's largest natural gas utility franchise.
3. Devon Energy
Devon Energy (DVN 0.19%) wasn't able to dodge the stock price downdraft that hit many energy companies. The oil and natural gas exploration and production company finished 2023 with its share down by more than 26%.
Devon Energy doesn't have your typical dividend structure. It pays a base amount (currently $0.77 per share) plus a variable amount that's based on the company's quarterly cash flows. Unfortunately, this means Devon Energy's dividend fluctuates with the price of oil, since that has a direct effect on the company's cash flow.
Even with the fluctuating dividend, it's a good option for income-seeking investors. Its current yield is 6.7%, which is higher than its five-year average, even though oil prices dipped somewhat in 2023.
DVN Dividend Yield data by YCharts.
Operationally, oil production continues to grow for Devon Energy. It's also operating more efficiently. Its completion efficiencies (feet completed per day) have improved by 23%, and its drilling efficiencies (feet drilled per day) have improved by 6% from 2020 through the first three quarters of 2023.
Devon Energy says it's focusing on growing per-share value, which should be music to the ears of long-term investors. At current prices, it seems to have a lot more upside than downside.
