3 High-Yield Energy Stocks That Are Screaming Buys in July
Finding high-yield stocks when the S&P 500 index is yielding a scant 1.3% may sound like a daunting task, but it isn't. You just need to be more discerning than usual when looking at massive yields, which often come with massive risks. Here are three high yields that are both attractively high and not laden with risk.
1. Enterprise Products Partners is a rock in stormy seas
There's no way around it. Oil and natural gas are highly volatile commodities. But just because a company operates in the oil and gas industry doesn't mean it is risky.
Enterprise Products Partners (NYSE: EPD), and its hefty 7% distribution yield, is a perfect example. This master limited partnership (MLP) owns the vital energy infrastructure that helps move oil and natural gas around the world. It charges fees for the use of its assets, so demand for energy is more important than energy prices. Energy demand tends to be high regardless of where oil prices are.
That's the backstory behind Enterprise's streak of 25 consecutive annual distribution increases. It also has an investment-grade-rated balance sheet. And its distributable cash flow covers its distribution by 1.7 times, which means there's a lot of leeway for adversity before the distribution would be at risk.
Enterprise isn't perfect; the yield is going to make up the lion's share of an investor's return. But slow and steady growth, coupled with that ultra-high yield, will likely be a highly rewarding outcome for those looking to maximize the income their portfolios generate.
2. WEC Energy's regulated assets are changing shape
WEC Energy (NYSE: WEC) is a regulated utility that provides electricity and natural gas to 4.7 million customers in parts of Wisconsin, Illinois, Michigan, and Minnesota. The stock sports a 4.2% dividend yield backed by over two decades' worth of annual dividend increases. The payout has grown at an attractive 7% rate over the past decade which, the company happily explains, puts it in the top decile of the industry.
WEC Energy's balance sheet carries an investment-grade credit rating, so it is financially strong. While that's important on the dividend front, more notable here is the growth potential of the business.
The utility is currently working on its largest capital investment plan ever, with an expectation to spend $23.7 billion over the next five years. That should help lead to earnings growth of between 6.5% and 7%, with the dividend likely to trail along with that growth. And one of the biggest drivers of the company's capital spending is its long-term shift away from coal toward cleaner energy sources, which is right in line with the broader trends in the utility industry.
Notably, WEC Energy's yield is near its highest levels in a decade, suggesting it is on sale. If you are looking for a boring high-yield stock that can provide you with an attractive mix of yield and dividend growth, WEC Energy is one you need to be looking at right now.
3. TotalEnergies mixes oil and renewables better than peers
But what if you actually want some direct exposure to oil and natural gas? That's where TotalEnergies (NYSE: TTE) and its 5% dividend yield come in. TotalEnergies is an integrated energy major and has one of the highest yields among its closest peers.
But what really sets the company apart is its aggressive push to diversify into cleaner energy options, like solar and wind power. At the same time it is upping its game in natural gas, a transition fuel, and fine-tuning its exposure to oil, focusing only on its best assets. All in, it is deftly using its historical business to take it well into the future.
And it is doing it better than any of its closest competitors. ExxonMobil and Chevron are really doubling down on oil and gas. BP and Shell both made splashy announcements about going green, but paired that directional shift with dividend cuts.
And neither of those two European peers have really pushed as hard as TotalEnergies, which didn't resort to a dividend cut. In fact, TotalEnergies' dividend easily survived the deep energy downturn that accompanied the economic shutdowns in the early days of the coronavirus pandemic.
TotalEnergies' performance is going to be tied to the price of oil and natural gas. But if you are looking for that kind of exposure, with a bit of a clean-energy hedge, this could be the integrated energy giant for you.
Make sure you understand the story
There are companies that have huge yields because their businesses are in trouble. Then there are companies that are misunderstood for some reason, which offer attractive yields backed by strong businesses. That's what you'll get with Enterprise, WEC Energy, and TotalEnergies. Don't delay -- all three look attractive as July gets underway.
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Reuben Gregg Brewer has positions in TotalEnergies. The Motley Fool has positions in and recommends BP and Chevron. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
3 High-Yield Energy Stocks That Are Screaming Buys in July was originally published by The Motley Fool
