If you are a dividend lover like I am, then you care a lot about finding stocks with big yields backed by growing dividends. That’s what you’ll get with Chevron (CVX 0.78%), Enterprise Products Partners (EPD 0.21%), and Enbridge (ENB -0.60%). However, there’s more to understand about a company than just its yield and dividend history. Here’s why these three are my top high-yield dividend stocks in the energy sector right now.
Impressive dividend records start the show
Before getting into the deeper story, a first cut look at dividends is still important. Enterprise, which is a midstream master limited partnership (MLP), has increased its distribution every single year for 26 consecutive years. Enbridge, a Canadian midstream giant, has increased its dividend (in Canadian dollars) every year for three decades. And Chevron, a globally diversified integrated energy company, has increased its dividend annually for 38 years and counting.
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Those are all impressive records, but they have to be couched in a very important fact. The energy sector is broadly known for being volatile because oil and natural gas prices are volatile. In other words, this trio has defied the odds when it comes to their ability to reward investors with a steadily growing income stream. And right now, they are each offering something else, too: an above-average yield.
The S&P 500 index is yielding roughly 1.2%. The average energy stock is yielding about 3.5%. Chevron’s dividend yield is currently around 4.6%, Enbridge’s yield is 5.9%, and Enterprise is yielding 6.8%. So you get outstanding dividend histories and outstanding yields if you buy these three energy giants right now.
Impressive foundations back impressive dividends
Clearly, there are good reasons to be looking at Chevron, Enterprise, and Enbridge as income investments. But the dividend headlines aren’t the whole show. The businesses that back those dividends are just as important, if not more so. For example, Chevron’s diversification across the entire energy value chain helps to reduce the impact of energy price volatility. Its chemicals and refining businesses, as a highlight, tend to benefit when oil prices are low, which is a headwind for its energy production operations.
Chevron also benefits from consistent cash flows produced by its pipeline operations. Toll-driven pipeline assets are what back midstream operators Enterprise and Enbridge. Slow and steady is the name of the game in the midstream sector, with growth coming from capital investments, price increases, and the occasional acquisition. That said, Enbridge stands out because it has a bit more diversification than Enterprise, with regulated natural gas utility assets and investments in clean energy.
The big picture here is that all three have business models built to withstand the typical ups and downs in the energy sector. And there’s one more key factor to consider. Chevron, Enbridge, and Enterprise all have investment-grade-rated balance sheets. That means they have a solid financial foundation to lean on when adversity comes along, which will help them to support both their businesses and their dividends through the hard times. That’s particularly important for Chevron, which has the most exposure to volatile energy prices.
I like all three, but own just one
Chevron and Enterprise are financially strong and high-yield energy stocks with great dividend stories to tell. I don’t own them. I own Enbridge and TotalEnergies because both of these energy businesses have made material efforts to diversify their businesses to include clean energy. TotalEnergies doesn’t make this dividend-focused list because it just doesn’t have the same dividend track record as Chevron.
If dividends are your primary focus, Chevron will probably be a better choice for your income portfolio. But each member of this trio — Chevron, Enterprise, and Enbridge — stands out as a financially strong, high-yield dividend option in the energy space right now.
Reuben Gregg Brewer has positions in Enbridge and TotalEnergies. The Motley Fool has positions in and recommends Chevron and Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.