3 Powerhouse High-Yield Dividend Stocks to Buy Now and Hold for Decades to Come

The energy and utilities sectors are known for their high yields. Dividends compensate patient shareholders for enduring the cyclicality of the oil patch. Meanwhile, utilities often choose to reward investors with dividends, given the sector's low growth.

However, focusing too much on yield alone can lead to poor investment decisions. The key is to find a company that blends a high yield with a sound business model that can support earnings growth, and in turn, a higher dividend.

Here's why Brookfield Renewable (NYSE: BEPC) (NYSE: BEP), Vitesse Energy (NYSE: VTS), and Chevron (NYSE: CVX) stand out as three high-yield stocks to buy now.

A person drops a coin in a glass jar next to two other glass jars that are full of coins and larger saplings.

Image source: Getty Images.

Brookfield Renewable excels at translating green power into generous passive income

Scott Levine (Brookfield Renewable): Finding companies with high-yield dividend stocks is easy. Weeding through them, however, and identifying those companies that are in sound financial health and have business models that suggest they can sustain their dividends for decades? That's a significantly more challenging feat -- but not impossible.

Brookfield Renewable fits this criteria exceptionally well. Operating a massive portfolio of green energy assets, Brookfield Renewable has demonstrated a strong commitment to rewarding shareholders, and its 4.8% forward-yielding stock certainly warrants attention from income investors looking for prime dividend stocks.

Inking power purchase agreements with customers that can be 20 or 30 years long, Brookfield Renewable has excellent foresight into future cash flows, helping it to plan for capital expenditures like advancing projects out of backlog and paying dividends accordingly. The company, for example, has grown its distributions per unit at a 6% compound annual growth rate from 2012 through 2023, and it's targeting consistent 5% to 9% annual distribution growth in the years ahead. With 134 gigawatts worth of projects in its backlog, it seems well-positioned to achieve this target.

With its ample solar, wind, and hydroelectric assets, Brookfield Renewable is not only a great dividend stock for those with a multi-decade investing horizon, but it's one of the most compelling renewable energy dividend stocks that investors can power their portfolios with right now.

A high-yield energy stock

Lee Samaha (Vitesse Energy): The small-cap oil and gas company Vitesse is an interesting way for oil bulls to invest. It's unusual in that Vitesse isn't the owner/operator of oil wells. Instead, its highly experienced management team (led by Bob Gerrity, founder of Gerrity Oil) invests in wells operated by other operators, primarily in the Bakken oil field in North Dakota. It currently has an average working interest of 2.7%, including 6,932 wells across more than 30 operators, such as leading energy players Chord Energy, Hess, and ExxonMobil.

Vitesse uses a proprietary system developed by the company to identify and allocate capital to assets. It is responsible for nearly 200 acquisitions totaling $580 million.

Vitesse currently pays a fixed dividend of $0.525 a quarter, which results in an annualized yield of 8.5% at the current price. However, its dividend may not prove sustainable over the long term; after all, Vitesse is still a company whose asset value depends on the long-term price of oil.

That said, Vitesse also operates a hedging strategy to protect its earnings and dividends from adverse oil price movements. As Vitesse President Brian Cree noted on the earnings call, "We have approximately 60% of our remaining oil production hedged at above $78 per barrel and a portion of our 2025 oil production hedged at above $74 a barrel."

As such, investing in Vitesse is as much about believing in management's ability to continue to identify productive investments and management's ability to predict the right time to increase/decrease hedging on the price of oil as it is about playing on the price of oil.

That might not suit some investors, but for those who have faith in its management team, Vitesse is an excellent way to get high-yield exposure to energy.

Chevron's dividend is built to last

Daniel Foelber (Chevron): Chevron stock has gained over 55% in the last three years compared to a 22% increase in its dividend. So naturally, the yield has come down. But it may surprise you that Chevron still yields 3.9% despite the stock hovering around an all-time high.

In February, Chevron raised its dividend by 8%, marking the 37th consecutive payout increase. Record profits have allowed Chevron to accelerate reinvestment in the business and boost its buyback program. Over the last 12 months, Chevron has spent $14.2 billion on buybacks -- which is even more than the $11.5 billion it has spent on its dividend.

Taking Chevron's market cap of $304 billion and its trailing 12-month capital return of $25.7 billion, the company would have a yield on its capital return program of 8.5%.

Capital return yield is a term I coined that factors in both buybacks and dividends. There's a similar term called shareholder yield that looks at cash dividends, net share repurchases, and net debt reduction as a percentage of market cap. Looking at the full extent of the capital return program better illustrates how much money a company is returning to shareholders -- and in a theoretical sense -- what the dividend yield would be if the company funneled the entire capital return program toward the dividend.

An 8.5% capital return yield is massive. Even Apple, which is famous for its buybacks, only has a capital return yield of 3.5%.

Chevron's results have been excellent, but investors may wonder how long it can keep generating outsized returns and how the business will perform if oil prices fall. Chevron has positioned its business to cover capital expenditures and dividends even if Brent crude oil is $50 a barrel. As of this writing, Brent crude oil prices are $83.

So if oil prices fall, we can expect Chevron to pull back on stock repurchases but still raise the dividend as it has done throughout severe downturns for several decades.

It's also worth mentioning that Chevron has a very healthy balance sheet and low leverage ratios. Its debt-to-capital ratio and financial debt-to-equity ratio are both around their lowest levels in a decade -- which shows that Chevron has done a good job managing its debt despite the capital-intensive nature of the oil and gas industry.

Chevron is well-positioned to thrive in the current oil price environment. But it also has the financial health and portfolio to endure a downturn without compromising its dividend.

Should you invest $1,000 in Brookfield Renewable right now?

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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has positions in Brookfield Renewable. The Motley Fool has positions in and recommends Apple, Brookfield Renewable, Chevron, and Vitesse Energy. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.

3 Powerhouse High-Yield Dividend Stocks to Buy Now and Hold for Decades to Come was originally published by The Motley Fool

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