When your hard-earned money is on the line, it’s easy to over-complicate an investment decision. But often the simplest course of action can be effective and still get you a good night’s sleep.
For many risk-averse investors looking for a steady return, the simple decision might be to look to dividend-paying stocks that have a good chance of increasing their profits and payouts over time. The energy industry has been home to high-yielding dividend stocks for years and the current imbalance in global oil and gas supply, coupled with growing demand and years of underinvestment, adds a layer. unmatched reliability in the energy industry for some time.
hugue baker (BKR -2.18%), Devon Energy (DVN -3.83%)and Kinder Morgan (KMI -2.62%) stand out as three particularly interesting oil and gas companies to consider right now.
Value investors should take a look at Baker Hughes
Lee Samaha (Baker Hughes): There are two reasons to buy Baker Hughes. The first is to take advantage of relatively high energy prices. The second is to take advantage of the boost as it potentially catches up to the performance of its peers such as Schlumberger and Halliburton.
The idea that energy prices (particularly oil) will remain high is based on the argument that the lack of investment since 2014 (when energy prices fell) and the current caution displayed by oil majors will curb supply growth. Thus, energy prices are likely to remain elevated for an extended period and not experience their historical volatility. Similarly, the high price of oil will induce further growth in spending, to the benefit of Baker Hughes.
The second argument concerns the underperformance of Baker Hughes compared to his peers. The reasons for this are its exposure to Russia, shortages of chips and components due to the supply chain crisis and disappointing execution.
Many of these issues are likely to prove temporary, and management is taking steps to restructure the business and better align its operations. This should translate into cost savings in the future. All in all, Baker Hughes has the opportunity to catch up to its peers and benefit from the continued strength of its end markets.
Hook Your Passive Income Wagon Onto This High Yield Energy Stock
Scott Levine (Devon Energy): The energy sector is replete with oil and gas stocks that provide ample dividends to shareholders. Shares of Devon Energy, for example, currently offer investors a mouth-watering dividend yield of 8.6%. Such a high payout may cause some conservative investors to question the sustainability of the payout, but a closer look at Devon’s recent natural gas deal as well as its financials suggests this stock is a valid consideration.
Focused on onshore assets located in the United States, Devon Energy is a leading exploration and production company. Earlier this month, the company took a giant step in expanding the natural gas niche of its portfolio, signing an agreement with Delfin Midstream. The agreement, a liquefied natural gas (LNG) export partnership, has the potential to produce a total of 2 million tonnes of LNG per year. This should result in a healthy increase in free cash flow for Devon Energy – an increase that can ultimately be returned to shareholders in the form of dividends.
At the end of the second quarter, Devon Energy had a net debt to EBITDA ratio of 0.4, suggesting that the company has taken a cautious approach to leverage, putting it on a solid financial footing. Additionally, the company’s 2022 free cash flow forecast of $6.5 billion suggests the company still has room to strengthen its balance sheet by paying down debt.
For those who not only want to increase their passive income stream, but are on the lookout for a bargain opportunity, Devon Energy’s stock is particularly enticing. Currently, Devon Energy shares are trading at seven times forward earnings, which is a steep discount to their 20 multiple of five-year average forward earnings.
High return and growth prospects as a bonus
Daniel Foelber (Kinder Morgan): Just a few years ago, pipeline and infrastructure giant Kinder Morgan’s growth prospects looked dim. Capital spending was at a 10-year low as investors questioned the long-term viability of natural gas infrastructure in an increasingly renewable world.
Fast forward to 2022, and global upheavals in the energy sector are making natural gas reliability more attractive than ever for energy-dependent countries in Europe and Asia. The United States is a net exporter of oil and natural gas. So while domestic growth prospects remain limited, the United States has the opportunity to boost natural gas production, cool and condense the gas into a liquid, and then ship it to buyers around the world.
Falling production costs have opened the door for LNG investment projects and now that margins are rising due to rising LNG end-market prices, the investment thesis for LNG is more attractive than ever. . For LNG to work, there must be a balance between natural gas production, LNG export terminals, regasification import plants and associated pipelines for importing countries. Rising demand for natural gas, not to mention widespread government support to boost LNG imports, is a boon for the US natural gas industry.
The LNG market depends on pipelines that connect production points (such as those in West Texas or the Utica Shale in the Appalachian Basin) to LNG liquefaction plants. As natural gas production increases, there will be a need for increased removal capacity and associated storage. This is where Kinder Morgan comes in.
Kinder Morgan remains one of the most reliable sources of passive income in the market with a current dividend yield of 6.1%. The long-term contracts provide a stable business model that generates enough cash flow to support the dividend even in the face of a downturn in the oil and gas market. This reliability was highlighted in 2020 when Kinder Morgan’s business suffered only minor performance dips. Add it all up and you have a no-brainer high-yielding dividend stock.