There’s one vital aspect of the energy sector that you can’t ignore — oil and natural gas prices are highly volatile. That means you have to go in with your eyes open to the risks, even when energy prices are strong. But income investors don’t have to fret since there are multiple ways to collect dividends in the energy space and one will probably suit you regardless of your risk appetite.
Here’s why you’ll want to take a close look at Enterprise Products Partners (NYSE: EPD), Chevron (NYSE: CVX), and Devon Energy (NYSE: DVN) as May gets under way.
Enterprise helps move it all
The energy sector is broadly broken down into three segments: the upstream, which deals with oil and gas production; the downstream, which involves refining and chemicals; and the midstream, which connects the upstream to the downstream.
Midstream businesses, like the one operated by Enterprise Products Partners, generally charge fees for the use of the vital pipeline, transportation, storage, and processing assets they own. The price of the commodities flowing through its system isn’t nearly as important as energy demand, which tends to remain robust even when oil prices are low.
The fees that Enterprise charges provide it with a reliable stream of cash to pay distributions. The master limited partnership (MLP) has increased its distribution annually for 25 consecutive years. Meanwhile, the distribution was covered 1.7 times over by distributable cash flow in the first quarter of 2024, meaning there’s little risk of a distribution cut.
The huge 7.4% distribution yield is likely to make up the majority of an investor’s return over time, but if you’re looking for a big yield in the energy patch, Enterprise Products Partners is a good way to get it.
Chevron is the “safe” way to invest in oil
While Enterprise tries to sidestep the riskiest aspect of the energy patch, Chevron attempts to reduce risk in a different manner. For starters, it has diversified its business across all three segments of the industry. The upstream, midstream, and downstream all tend to have different business dynamics,…
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