If you are looking for ultra-high-yield stocks in the energy sector, the best place to look is likely to be the midstream segment of the industry. These companies help to move oil and natural gas around the world, charging fees for use of the energy infrastructure assets.
You should probably start your search with Energy Transfer (ET 0.77%) and its 7.2% yield, but you may find you prefer Enterprise Products Partners (EPD 1.56%) or Enbridge (ENB +0.54%), which have yields of 6.2% and 5.6%, respectively. Here's what you need to know.
Energy Transfer is high yield for a reason
Energy Transfer has the highest yield on this list. The problem is that it cut its distribution in half in 2020 amid the pandemic-era energy industry downturn. The goal of that move was to strengthen the balance sheet. With that done, the distribution is growing again and, notably, above where it was prior to the cut.
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The plan from here is for slow-and-steady distribution growth of 3% to 5% a year. That's a reasonable goal, and Energy Transfer has capital investment plans of up to $5.5 billion in 2026 to achieve it this year. Given the recent distribution cut, however, this is probably only appropriate for more aggressive investors.
Enterprise and Enbridge are more reliable
Enterprise has increased its distribution annually for 27 consecutive years. It has an investment-grade credit rating, and its distributable cash flow covers its distribution by a comfortable 1.7x. Even the most conservative investors will find this North American midstream giant attractive. Distribution growth should probably be similar to that of Energy Transfer over time.
Enbridge is a bit different. It is a midstream industry leader, but it also has exposure to regulated natural gas utilities and clean energy assets. The company's big goal is to shift its business along with the world's changing energy needs.
If you are looking for a clean-energy hedge, this high-yielder is probably going to be a good fit for your portfolio. Notably, it has increased its dividend for 30 consecutive years.
NYSE: EPD
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NYSE: ENB
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NYSE: ET
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Three ultra-high yield energy options to consider today
Energy Transfer is high-yielding and comes with more uncertainty given its past distribution cut. Enterprise is boring and reliable, making it a good fit for most income investors. Enbridge has the lowest yield but the most diversified business, which may interest those worried about the global energy transition underway.
