Crude oil prices have been cut in half, from over $100 a barrel this summer to roughly $50 right now. And as a result, the energy sector has taken it on the chin as a result.
Just look at a recent FactSet report that indicates a 14.5% year-over-year decline in sales for the energy sector vs. a blended growth rate of 1.6% in revenue for the S&P 500 at large.
But while a lot of big-name energy stocks like Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) are down significantly in the last six months vs. a buoyant stock market, let’s not confuse day-trading commodities with long-term dividend investing strategies.
While some energy stocks have been battered, there also are a host of low-risk, long-term plays that have hung tough — and should continue to serve investors’ high yields going forward, no matter the short-term volatility in crude oil prices.
I have my eye on five high-yield energy stocks right now that offer juicy dividends as well as the potential for upside in shares in the long-term. They are …
High-Yield Energy Stocks: Energy Transfer Partners LP (ETP)
Market Cap: $20.8 billion
YTD Performance: -9% vs. +1 for the S&P 500
Dividend Yield: 6.8%
Energy Transfer Partners LP (NYSE:ETP) is one of my favorite energy stocks out there because it is not as exposed to crude oil volatility as others.
As an energy infrastructure MLP, I like to call stocks like ETP “toll takers” that profit from fees that other companies pay them for transportation and storage services.
Another big plus is that Energy Transfer Partners LP focuses heavily on natural gas, too, meaning even less exposure to crude oil pricing.
While it’s true this stock has underperformed lately, the total returns across the last 12 months tell a much different story. When you include the dividends, ETP is actually up a little more than 15% — better than the roughly 13% for the S&P 500 in the same period.
That’s what happens when you include a juicy dividend yield supported by highly reliable MLP operations.
Sure, ETP shares may never double your money in short order. But that’s not what long-term dividend investors should be after. The real appeal is the steady and reliable 6.8% yield.
High-Yield Energy Stocks: Williams Partners L.P. (WPZ)
Market Cap: $22.6 billion
YTD Performance: +4%
Dividend Yield: 7.3%
Another energy infrastructure play, Williams Partners L.P. (NYSE:WPZ) operates gas pipelines around the U.S. and Canada.
As with ETP, this so-called “midstream business” is insulated from the volatility we have seen lately in crude oil prices because energy companies that extract oil and natural gas from the ground still need to use WPZ pipelines to move it “downstream” to refiners and points of sale.
Like many MLP investments, Williams doesn’t have a fixed dividend and can see modest fluctuations quarter to quarter and year to year. If you take the latest dividend of 85 cents a share and annualize it, you get a yield of 7.3%. Using the last four consecutive payouts, however, you get a more attractive yield of 7.8%. Translation: Even a mild dip in future distributions still will mean big-time dividends for investors.
But more important than the dividends alone is the stability. WPZ stock boasts a beta of just 0.5 right now, meaning it moves at a magnitude that’s about half as much as the market at large.
Sure, that means it likely won’t go up as quickly … but it also means that Williams should go down half as fast if the stock market runs into trouble in 2015.
This combination of income and stability makes Williams quite attractive right now on its recent pullback. And considering it has outperformed the market since January, investors shouldn’t expect the bargain pricing to last long.
High-Yield Energy Stocks to Buy: NuStar Energy L.P. (NS)
Market Cap: $4.8 billion
YTD Performance: +7%
Dividend Yield: 7.1%
NuStar Energy L.P. (NYSE:NS) is another a glorified toll-taker on the energy highway. It’s not a sexy business, to be sure … but while exploration stocks get a lot of press for hard-charging “wildcatters” searching for new energy finds, there’s a lot of risk to that kind of business as well if you don’t strike a big find.
NuStar has been hampered since the Great Recession by a bigger borrowing costs, with long-term debt jumping to $2.7 billion recently from around $1.9 billion in 2011. But the company has been busy restructuring for the last year or two, including spinning off its asphalt business this year to focus on its midstream operations, which are the big driver of its dividends.
In fact, thanks to these moves and others, NuStar has surged almost 50% from its lows in September 2013 while the broader market has only tacked on about 25% in the same period. Meanwhile, NS stock is down just 4% in the past six months — not bad, considering how hostile the market has been to oil and energy stocks in that time!
NuStar continues to see strong cash flows that more than cover its hefty distributions. And it’s important to note that despite restructuring efforts, that payout has been consistent, squeaking up from $1.065 per quarter in 2009 to just $1.095 currently, even across some rough times.
If cash flows remain strong, then future increases in distributions could be likely, making the already juicy payouts even nicer in the years ahead as this company continues to adapt and evolve.
High-Yield Energy Stocks to Buy: Enerplus Corp (USA) (ERF)
Market Cap: $2.2 billion
YTD Performance: +16%
Dividend Yield: 7.7%
Enerplus Corp (USA) (NYSE:ERF) is the smallest stock on this list, an energy exploration company involved mainly in the exploration and development of crude oil fields mainly around the Dakotas and Appalachian Mountains, as well as western Canada.
However, despite its relatively small scale and focus on exploration, ERF stock has done quite well, jumping by double digits so far in 2015 despite a flat market. Furthermore, while a lot of other small exploration stocks are suffering, Enerplus is operating at a pretty substantial profit.
The quarterly dividend of 9 cents a share is very sustainable at the current pace of earnings, though it should be pointed out that the dividend does have a tendency to fluctuate depending on how the company is performing. Still, ERF clearly values its payout — the company has paid dividends since 1986.
Enerplus admittedly is a bit risky because of its size and because of the volatility in crude oil prices for the next few months. However, this company has been around for a long time and has a strong commitment to shareholder value.
That means juicy dividends and stability in the long term no matter what headaches oil prices give ERF investors in the short-term.
High-Yield Energy Stocks: Noble Corp plc (NE)
Market Cap: $4.5 billion
YTD Performance: +12%
Dividend Yield: 8.1%
Offshore drillers have simply been destroyed by the crash in oil prices. It’s easy to understand why, considering the expensive nature of deepwater drilling operations and the lack of profits associated with these supplies when crude is cheap.
But while the long-term chart is ugly for Noble Corp plc (NYSE:NE), things are starting to look much better for the offshore oil giant. A recent report in Barron’s showed optimism based on lowered expenses as older rigs are retired and the strong relationships Noble has with major oil companies as the go-to driller of choice.
Throw in a juicy 8% dividend yield that is actually just 73% of projected 2015 earnings, and you have a promising narrative for Noble as a dividend stock with most of the negativity priced in.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.