It's been a disappointing 12+ months for many energy dividend stalwarts. Kinder Morgan (NYSE: KMI) cut its dividend by 75% in December. ConocoPhillips (NYSE: COP) slashed its payout by 66% two months later. With crude and natural gas prices so low, the companies don't have much of a choice. They can either choose to keep their growth plans, or they can cut dividends. Many energy companies have decided on the former, and fear that other companies could make the same decision have sent energy stocks even lower.
While most companies in the energy industry aren't doing well, Valero Energy (NYSE: VLO), Occidental Petroleum (NYSE: OXY), and Enterprise Products Partners (NYSE: EPD) stand out from the crowd. They haven't cut their dividends like other energy companies, and their strong balance sheets and robust cash flows insulate the companies from trouble. Best of all, each of the three stocks pay attractive yields. .
A strong refiner
Refiners received some bad news when Congress reversed the crude export ban in December. Because of Congress' act, WTI's substantial discount to Brent has shrunk, and U.S. refiners, who benefit from the Brent-WTI spread, are making less money because of it. Nevertheless, the U.S. refiners are doing well. Given that natural gas prices are lower in the U.S. than in the rest of the world, U.S. refiners like Valero Energy have lower costs and higher margins than its competitors. Given that refining capacity hasn't expanded much, the industry's operable utilization rate is high, which further increases margins. Because of these trends, refiner earnings are healthy. Valero earned $9.24 per share in 2015, more than enough to cover its annual dividend cost of $2.40 per share.
Because of its strong earnings and its excellent debt to capital ratio of 0.26, Valero raised its dividend twice last year, once from $0.40 cents per share to $0.50 per share, and another from $0.50 to $0.60 per share. Given its payout ratio of 21.4% and average annual expected earnings growth rate of 8.26% for the next five years, Valero's dividend can grow at a double digit percentage rate for the next five years and the company would still have plenty of cash to left over to repurchase shares or pursue growth initiatives.
TMFJay22 has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has the following options: short June 2016 $12 puts on Kinder Morgan. The Motley Fool recommends Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.