Everyone loves a stock that pays a huge dividend, but finding one you can trust is not always easy. After all, what good is a high dividend yield if the company cuts the payout?
Fortunately, there is hope. The energy industry can be a great place to look for big-time dividend stocks. Energy is the foundation of society; it's everywhere, whether used for transportation, heating your home, or manufacturing the goods and services we buy.
After some digging, I found a handful of high-yield energy stocks you can trust to keep delivering hefty dividends to your portfolio.
1. A diversified energy giant in Canada
Dividend yield: 6.6%
Enbridge (NYSE: ENB) is a North American energy company. Its pipelines transport oil and natural gas throughout the continent, including 20% of the natural gas America consumes. Additionally, it operates North America's largest gas utility. These two businesses generate most of Enbridge's profits, though the company also dabbles in renewable energy generation, which could be a long-term growth opportunity.
Enbridge enjoys very steady revenue from its core pipeline and utility businesses. Not only do people always need energy, but these two industries are also heavily regulated, which helps limit competition.
Slow and steady business performance is fertile ground for dividends; Enbridge has paid and raised its dividend for 28 consecutive years. So, investors get a high starting yield, and the payout grows, too. Enbridge expects to earn approximately 5.60 Canadian dollars per share in distributable cash profits in 2024 while paying out CA$3.66. That's a healthy 65% dividend payout ratio, leaving some breathing room for future increases and a safety net if the business stumbles.
2. A long-standing oil major
Dividend yield: 4.6%
Chevron (NYSE: CVX) is an integrated oil and gas company with upstream and downstream operations. That means Chevron explores and drills for fossil fuels, refines them, and sells them to the market.
The company dates back to the 1800s as Pacific Coast Oil. Since the oil and gas industry dates back to the Industrial Revolution, it should be no surprise that such a historic company also has a storied dividend track record. Chevron has paid and raised its dividend for 37 consecutive years, proving it can pay its investors through the oil and gas industry's ups and downs.
The dividend remains in excellent health today; the current payout ratio is 55% based on Chevron's estimated 2024 earnings. The company's strong balance sheet, rated AA-, is a safety net for tough times. Chevron's footprint in the resource-rich Permian Basin sets the business up for long-term growth.
The company is also trying to acquire Hess for its coveted Guyana assets, though ExxonMobil has opposed the deal in court. Investors will need to wait and see how the Hess situation plays out, but Chevron should remain a dependable, high-yield dividend stock regardless of whether the Hess deal closes.
3. Dividends on the back of artificial intelligence
Dividend yield: 4.7%
Dominion Energy (NYSE: D) is a prominent gas and electric utility company in the United States, serving over 4.5 million customers in Virginia, North and South Carolina, Utah, Idaho, Wyoming, West Virginia, Ohio, Pennsylvania, and Georgia.
Dominion has had issues affording its dividend, unlike the other companies on this list. The company cut its dividend in late 2020 and hasn't raised it since early 2022. So, how did it make this list?
Utility companies grow when customers need more energy. The Virginia market is high-tech and includes a massive and growing data center footprint. Dominion is poised to grow from the increased electricity demand.
Analysts believe Dominion will earn $2.77 per share this year, which isn't good because its dividend is $2.67. That's almost all its earnings going out the door. However, earnings estimates for next year are $3.39 per share, so the payout ratio should improve greatly over the next 12 to 18 months.
4. A healthier and improved pipeline stock
Dividend yield: 5.4%
Kinder Morgan (NYSE: KMI) is a pipeline company that transports oil and gas, CO2, and other resources through North America.
The company cut its dividend to protect its balance sheet in 2015 but has raised it for the past seven years and counting. A past cut may be a deal-breaker for some investors, but it might be worth having some faith in Kinder Morgan.
The company has decreased its leverage by 26% since 2016 and today has an investment-grade credit rating. Kinder Morgan is guiding for $2.26 in distributable cash flow this year versus a $1.15 dividend. That's a payout ratio of just over 50%. The dividend should remain reliable as long as the company stays financially sound.
Kinder Morgan is more exposed to natural gas today than a decade ago, which positions the company for growth. Management believes natural gas demand in the U.S. will increase 19% by 2030, including significant growth in exports through Mexico (Kinder Morgan is based in Houston, Texas). Investors should see dependable dividends from Kinder Morgan for the foreseeable future.
Should you invest $1,000 in Enbridge right now?
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron, Enbridge, and Kinder Morgan. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
Buy These 4 High-Yield Dividend Stocks Today and Sleep Soundly for a Decade was originally published by The Motley Fool