The energy sector is volatile, which is the first thing that any investor venturing into high-yield energy stocks needs to understand. You have to plan for oil's peaks and valleys in some way or you will likely end up making short-term investment choices that are less than ideal.
Here are three high-yield energy stocks that may be worth the risk for you because they have a history of continuing to reward investors despite oil's ups and downs.
1. Chevron is a port in a storm
Chevron (CVX 1.76%) is one of the largest integrated energy companies in the world. It is "integrated" because it has operations across the entire energy sector, from drilling for oil (the upstream) to transporting it (the midstream) to processing it into other things (chemicals and refining). Each segment performs just a little differently through the energy cycle, so having exposure to all of them helps to soften the energy industry's normal swings.
The proof of that is Chevron's 38-year history of increasing its dividend. That's an incredible track record given the volatility in oil prices over that time. Helping on that front is the company's strong balance sheet, which currently sits with a debt-to-equity ratio of around 0.2. That would be low for any company and gives management the ability to take on leverage during oil downturns so it can support the dividend and business until oil prices recover.
With a 4.4% dividend yield, you'll generate a lot more income with Chevron than you will with the average energy stock. The sector's yield is roughly 3.2%, which is more than a full percentage point lower. And the income stream you get from Chevron is likely to be way more reliable than average, too.
2. Enbridge is a midstream giant and a little more
Enbridge (ENB 0.42%) operates largely in the midstream segment of the energy sector. This is the most reliable niche because it is filled mostly with toll-taker businesses. Essentially, Enbridge owns energy infrastructure assets, like pipelines, and it gets paid to move oil and natural gas. The price of those commodities is far less important to Enbridge than energy demand, which tends to be robust regardless of oil prices. All in, Enbridge's pipeline business provides a steady stream of cash to support its lofty 5.6% dividend yield.
But Enbridge isn't just a pipeline company. It also owns regulated natural gas utilities and has a small clean-energy business. Both are in line with the company's goal of changing along with the changing energy needs of the world. Essentially, Enbridge is slowly moving toward cleaner energy sources. That said, both of these businesses are reliable cash-flow generators, too. The regulated utility assets also have the benefit of providing a fairly steady stream of capital investment opportunities, helping to support slow and steady long-term growth.
Enbridge won't excite you, but with a 5.6% yield that probably won't be too upsetting to most dividend investors. And, notably, its boring approach to the energy sector has allowed it to increase its dividend, in Canadian dollars, for three decades and counting.
3. MPLX is building a reliable dividend record as gathers assets
MPLX LP (MPLX 1.36%) is a large midstream master limited partnership (MLP). It has similar operations to Enbridge in that it owns pipelines and energy processing assets. However, it doesn't own utility or clean energy investments, so it is not nearly as diversified.
MLPX, with a market capitalization of about $50 billion, is also notably smaller than Enbridge, which has a market cap exceeding $100 billion. There's a bit more risk in owning MPLX, but for those with a slightly more aggressive investment approach the MLP's 7.8% yield should be ample compensation for that risk.
The big story with MPLX is growth, which is happening in two ways. First, it is investing in its own business via a capital investment program. Second, it has been acting as an industry consolidator, buying up assets and entire companies. That combination has led to material growth in the distribution of late, with the most recent hike a lofty 10%. That follows on a 12% increase in 2024 and 10% hikes in 2022 and 2023.
It isn't reasonable to expect increases that large every year, but this shows what the business is capable of when times are good. And that growth is backed by 13 years' worth of annual distribution increases, which is basically how long MPLX has existed. If you can handle a little less certainty than dividend stalwarts Chevron and Enbridge, MPLX could be a high yield worth the risk.
Three high-yield options worth looking at right now
If you are looking to add an energy stock to your dividend portfolio, you'll want to dig into Chevron, Enbridge, and MPLX right now. They all have above-average yields, solid businesses, and strong histories of returning value to investors via a reliable and growing income stream.
Chevron provides direct exposure to energy prices. Enbridge is diversified across the energy sector as it adjusts its portfolio to the world's changing energy needs. And MPLX is a midstream story with a focus on growth. One or more will likely fit very well with your investment needs.
