This year, oil prices have experienced significant fluctuations. For instance, West Texas Intermediate, a key U.S. benchmark for oil pricing, has ranged from around $60 to as high as $80. The unpredictability in oil prices could impact the income of oil producers and potentially disrupt their ability to maintain regular dividend payments.
Despite the unpredictability in the high-yield sector, some stocks remain stable. Notably, Enterprise Products Partners (EPD), Chevron (CVX), and Enbridge (ENB) have caught the attention of several analysts at Fool.com for their robustness. Here’s why these three steady income options should be on your radar, regardless of market volatility.
Enterprise offers more than just a high yield
Reuben Gregg Brewer (Enterprise Products Partners): The primary factor that makes Enterprise Products Partners appealing to most investors is its high distribution yield of 6.9%. However, there’s a lot more to appreciate about it than just this generous yield. For instance, the distribution has been increased every year for an impressive 26 years in a row, despite operating in the unpredictable energy sector.
Instead, the external appearance of strength might not fully capture why this high-yielding enterprise is admirable. What truly makes it appealing is its innovative business model. This company possesses the vital energy infrastructure, such as pipelines, that facilitate the transportation of oil and natural gas globally. Its primary revenue source isn’t the commodities themselves but rather the fees it collects for utilizing its assets. Consequently, the demand for its services remains significant regardless of the fluctuating prices of the commodities being transported through its network. Energy is an essential component of contemporary life, and demand for it tends to remain strong, even in challenging market conditions.
Beyond what’s already been said, the enterprise boasts a high-quality balance sheet with an investment grade rating. Moreover, its distributable cash flow comfortably covers its distribution by 1.7 times, which means it has considerable resilience against hardships before a potential cut in distributions. Furthermore, with $7.6 billion of capital expenditure planned, the trajectory appears to be one of increased distribution growth rather than reduction.
This enterprise’s distribution is likely to account for a significant share of its overall returns in the long run. However, in an era where energy prices are fluctuating, it’s challenging to find dividend stocks that perform consistently well in the energy sector. Yet, this high-yield master limited partnership is hard to surpass when it comes to reliable dividends.
Primed for growth
Neha Chamaria (Chevron) points out that while all oil producers are affected by oil prices, some companies with extensive portfolios, solid finances, and prudent capital allocation practices can consistently deliver impressive returns to shareholders, especially during challenging periods. Dividends are a significant factor in this, and stocks that offer dividends regardless of oil price fluctuations tend to be long-term winners. Chevron, which offers a yield of 4.8%, is an example of such oil stock that can provide larger dividends year after year, even in the current unpredictable oil market.
2024 proved to be a significant milestone for Chevron. It distributed an unprecedented $27 billion back to its stockholders, with $11.8 billion allocated as dividends. Notably, this oil giant also boosted its annual dividend by 5% in that year, marking the 38th consecutive year it has increased its dividend – a testament to Chevron’s unwavering commitment to dividend stability.
Chevron is poised for significant growth that could further increase its dividends. It recently emerged victorious in a legal dispute with competitor ExxonMobil and has taken over Hess, thus gaining a 30% stake in the valuable Stabroek Block in Guyana, as well as assets in the U.S. Bakken. Chevron anticipates that this acquisition will lead to substantial growth in production and cash flow in the near future, which may result in even more substantial returns for its shareholders. Essentially, investors in Chevron can look forward to not only regular dividends but also larger dividends from the oil company, despite fluctuations in oil prices.
Proven predictability in a volatile market
Matt DiLallo (Enbridge): Enbridge manages North America’s largest and intricate network of oil and liquids pipelines, carrying approximately one third of the continent’s oil. The company derives roughly half of its annual income from these liquids pipeline assets. Although Enbridge has substantial involvement in the oil market, oil prices exert little influence on the organization’s financial outcomes.
I’ve noticed that Enbridge, being heavily invested in assets tied to cost-of-service agreements or long-term contracts, has minimal direct exposure to commodity price fluctuations. This is because a substantial 98% of their earnings stem from these agreements. Moreover, Enbridge boasts a broad business portfolio, encompassing liquids pipelines, natural gas pipelines, utility services for gas, and renewable energy resources. Consequently, its risk-averse business strategy guarantees consistent and reliable cash inflows. Intriguingly, the company’s financial performance has been so stable that it has met its annual financial targets for an impressive 19 consecutive years.
Enbridge consistently generates a steady income stream, making it capable of dispensing a robust and resilient dividend for over 70 years, with annual increases for 30 consecutive years, suggesting further growth ahead. This optimism is bolstered by its vast inventory of commercially guaranteed expansion projects, which include new pipelines and utility expansions. These projects, due to be completed by the end of the decade, are expected to add more income to their cash flow. The long-term contracts associated with these projects create reliable and predictable revenue streams that could help Enbridge fund future dividend boosts. Additionally, the company’s low payout ratio and prudent financial position strengthen its potential for continuous, sustainable dividend growth in spite of ongoing oil price fluctuations.
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2025-07-21 21:40