3 Energy Stocks with Sky-High Dividends Worth Considering

The energy sector has been a haven for investors seeking income in 2023. Surging energy prices have fueled a surge in dividend payouts, with many companies offering yields well above the market average. Here are three energy stocks that currently offer compelling dividend yields:

Enterprise Products Partners LP (EPD)

Dividend Yield: 8.1%
Business: A leading midstream energy company, transporting and storing natural gas, oil, and NGLs (natural gas liquids).

Enterprise Products Partners has a long history of delivering reliable dividends, with a distribution coverage ratio consistently exceeding 1.0x. Its business benefits from long-term contracts and fee-based revenue, providing stability even during market downturns. The company's strong cash flow generation allows it to maintain a sustainable dividend policy while continuing to invest in growth projects.

Energy Transfer LP (ET)

Dividend Yield: 9.7%
Business: A major interstate and intrastate natural gas pipeline operator, owning and operating one of the largest natural gas pipeline systems in the U.S.

Energy Transfer LP has emerged as a high-yield income generator in recent years. Its pipeline network provides a critical infrastructure for transporting natural gas to population centers and industrial hubs. The company has a diversified customer base, including utilities, power generators, and large industrial consumers. Its steady cash flow stream enables it to support its generous dividend payout.

Plains All American Pipeline LP (PAA)

Dividend Yield: 9.9%
Business: A diversified midstream energy company engaged in the transportation, storage, and distribution of crude oil, natural gas, and NGLs.

Plains All American Pipeline LP has a vast network of pipelines and storage facilities across North America. It benefits from long-term contracts and take-or-pay agreements, ensuring recurring revenue even in periods of fluctuating energy prices. The company's geographically diverse operations provide resilience and reduce exposure to regional market conditions. Its strong cash flow generation allows it to sustain its high dividend yield.

Factors to Consider Before Investing

While these energy stocks offer attractive dividend yields, it's important to consider the following factors before investing:

Commodity Price Volatility: Energy stocks are highly sensitive to changes in commodity prices, particularly oil and natural gas. Fluctuations in prices can impact the companies' revenue and cash flow.
Debt Levels: High levels of debt can strain a company's financial flexibility and increase the risk of dividend cuts in the event of a downturn.
Distribution Coverage Ratio: The distribution coverage ratio measures a company's ability to cover its dividend payments with its cash flow. A ratio below 1.0x can be concerning.

Conclusion

Enterprise Products Partners LP, Energy Transfer LP, and Plains All American Pipeline LP are well-established energy companies with strong dividend profiles. Their high dividend yields, supported by stable cash flow generation, make them attractive income investments. However, investors should carefully consider the risks associated with the energy sector and conduct thorough research before investing.