Investors have the opportunity to generate income through capital gains or dividends. While many investors may typically seek capital appreciation from energy stocks due to their correlation with energy prices, there are some energy stocks that offer substantial dividends, providing investors with an alternative source of returns.
Several energy stocks with stable businesses and significant dividend payouts are worth considering.
One such stock, which has seen a meaningful recovery of approximately 22% since October 2023, is Enbridge. Despite this recovery, Enbridge still offers a high dividend yield of 7.2%. Investors in this blue-chip stock are primarily relying on consistent dividend income rather than significant capital gains, as the stock is currently considered fairly valued. While Enbridge has historically experienced double-digit dividend growth, future growth is expected to be more modest, with recent hikes averaging around 3% annually. Management projects medium-term cash flow growth of 5%, supporting potential dividend growth of 3 to 5%, resulting in total returns of approximately 10 to 12% per year.
Another energy stock worth considering for its big dividend is Parex Resources. Unlike Enbridge, Parex Resources is an oil and gas producer in Colombia with low leverage and a history of share buybacks. The company began paying dividends in 2021 and has consistently increased them, although recent growth has slowed. With a dividend yield of almost 7.3% and analysts predicting potential upside of over 40%, Parex Resources is viewed as undervalued.
Furthermore, investors seeking growth may find opportunities with Brookfield Renewable Partners. The company aims to increase its funds from operations per unit by more than 10% annually and its cash distribution by 5 to 9% annually through asset optimization and strategic acquisitions. With a track record of consistent cash distribution increases and a current yield of about 5.8%, Brookfield Renewable Partners offers investors the potential for long-term total returns of 12 to 15% per year.
In conclusion, these energy stocks present opportunities for investors seeking income and growth in their portfolios, making them attractive options for conservative and growth-oriented investors alike.
