The energy sector was among the worst-hit amid the COVID-19 pandemic. As lockdowns were imposed all over the world in early 2020, the demand for crude oil plunged. Several energy companies booked massive losses and had to roll back or suspend their dividend payouts entirely as a result. While the global economy is staging a recovery in 2021, oil prices have already gained momentum, making these beaten-down stocks an attractive contrarian bet for investors.
Enbridge stock has a dividend yield of 7.2%
Enbridge is a well-diversified Canadian energy company. It is a midstream giant with a contract-based business model that operates oil and gas pipelines. The company is now looking to expand its renewable energy portfolio and has an extensive natural gas distribution infrastructure.
Its robust model allows Enbridge to derive stable and predictable cash flows across economic cycles. As the company is relatively immune to commodity prices, Enbridge has increased its dividends at an annual rate of 10% since 1995. Its management team expects distributable cash flow per share to increase between 5% and 7% annually through 2023, which suggests more dividend increases are on the cards. ENB stock currently has a forward yield of a tasty 7.2%.
In the last two decades, Enbridge has built a solid renewable business with development and operating capabilities. It has 3,600 megawatts gross of North American onshore and European offshore renewables. It has kicked off three other projects that will increase its renewable energy capacity by another 1,400 megawatts.
Analysts tracking ENB stock have a 12-month average price target of $52.18, which is 12% above its current trading price. After accounting for its tasty yield of 7.2% total returns will be closer to 20% in the next year.
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Exxon Mobil has a dividend yield of 5.9%
While Enbridge has a market cap of $94 billion, Exxon Mobil is a much larger company with a market cap of US$249 billion and an enterprise value of US$316 billion. In Q1 of 2021, Exxon Mobil posted revenue of US$59.15 billion — a year-over-year growth of 5%. It produced 3.8 million oil-equivalent barrels per day, which were 6% lower than the prior-year period, this metric rose 3% on a sequential basis. The prices of Brent crude are up over 30% year to date, which drove Exxon’s top-line growth in Q1.
An uptick in oil prices also allowed the company to increase adjusted earnings by 21% to US$2.76 billion, or US$0.65 per share. Wall Street forecast Exxon Mobil to post revenue of US$54.6 billion and earnings of US$0.59 per share in the March quarter.
Exxon Mobile attributed its impressive results to its focus on cost reductions “while prioritizing investments in assets with a low cost of supply.”
Like Enbridge, Exxon Mobil also has an attractive dividend yield of 5.9%. Wall Street has a 12-month average target price of US$63.81 for XOM stock, which is less than 10% higher compared to its current trading price.
The Foolish takeaway
If I have to choose between two energy giants, I will have to go ahead with Enbridge due to its solid business model, higher dividend yield, and diversified base of cash-generating assets. Exxon Mobil, however, is impacted by oil prices making it a riskier bet considering the underlying macro-economic uncertainties.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.