Forget about oil stocks, buy these 3 energy stocks instead

For decades, the integrated oil giants have been viewed as reliable dividend payers delivering a product the world could not live without. Now, however, it’s pretty clear that oil’s dominance in global energy markets is slowly coming to an end. If that makes you think beyond oil, here are three dividend-paying energy stocks that might be right for you.

1. Down to the essentials

Not so long ago, Energy of Domination (NYSE: D) had an upstream exploration and power generation business, but abandoned it. He also owned intermediate assets in the pipeline space, but these were also recently sold. Now Dominion is largely a boring utility stock. This is not such a bad thing, although the interim sale came with a 33% dividend cut given the size of the division.

Image source: Getty Images.

The point is, Dominion is poised to return to growth with spending approved by regulators. The company has planned $ 32 billion in capital spending over the next five years. This, in turn, is expected to result in annualized earnings growth of around 6.5% through 2025. And this will allow the company to increase the dividend at a rate of around 6% per annum while maintaining a strong payout ratio of around 65%. The current yield is around 3.3%, which is not as high as some of the oil giants, but overall it looks like an attractive balance of yield and growth.

2. A clean energy giant

Next name on the list is the U.S. electric utility giant NextEra Energy (NYSE: NEE). There are some similarities between Dominion and NextEra, in that they both own regulated utilities. In NextEra’s case, he runs Florida Power & Light, the dominant supplier in the Sunshine State, which has long benefited from population growth. However, where things get interesting is that NextEra has layered a renewable energy company on top of its strong base of regulated utilities.

This is no small feat either, given that NextEra claims to be “the world leader in electricity produced from wind and sun”. With 26 gigawatts of generating capacity in its NextEra Energy Resources division, this might not be such an outrageous claim. This makes it a great option for investors looking to bridge the old and new in the wider energy sector. What is remarkable, however, is that NextEra plans to add up to 30 gigawatts of additional renewable projects by the end of 2024. That, added to spending plans in its regulated activities, is expected to drive growth in revenues. profits of 6-8% over the next few years, with the dividend increasing at an even more impressive rate of 10% until “at least” 2022. The current dividend yield is around 2% or so, but with a Even higher dividend growth potential than Dominion’s, this seems a solid option for dividend growth investors who think oil is following the dinosaur’s path.

ENB Dividend Yield Chart

ENB Dividend Yield Data by YCharts

3. Go, go, but not gone yet

While it is clear that electricity, especially clean energy, will eventually supplant oil as the dominant energy choice in the world, we are far from the day when oil is no longer needed. This is why some investors might want to consider the Canadian mid-market giant Enbridge (NYSE: ENB). The company’s largest companies generate royalties for operating the pipelines that transport oil and natural gas in North America. Together, these two cash cow activities represent around 83% of EBITDA. The remainder is divided between a regulated natural gas public service activity (14% of EBITDA) and a renewable energy activity (the remainder).

So Enbridge is tackling what is arguably the more stable side of the energy industry, a boring utility company and the emerging clean energy industry. It should be noted that he is working on a number of large offshore wind projects in Europe, which should allow the clean energy sector to gain importance in the coming years. However, the biggest draw here is the huge dividend yield of 7%. The company’s growth plans (which include capital expenditures of between $ 3 billion and $ 6 billion per year) are expected to result in distributable cash flow growth of 5-7% per year. The dividend is likely to lag just a little behind this rate of growth. Investors looking for a high-yield energy option that avoids the ups and downs in oil prices while also focusing on the utilities and renewable energy sectors are likely to find Enbridge attractive.

Change over time

You can’t really forget about oil just yet because the world still needs fuel. However, that doesn’t mean that you can’t start adjusting your exposure to the energy sector so that you don’t have to worry so much about the changes taking place in the industry. Dominion is a boring electric name that has repositioned itself for solid growth. NextEra steps on the accelerator as it grows its clean energy business, taking full advantage of the changing landscape of the energy industry. And Enbridge is a high efficiency option that allows you to maintain some tangential exposure to oil while benefiting from the emerging clean energy shift. One or more will likely be attractive if you are concerned about the future of oil drillers today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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Felix J. Dixon