Investors can make money from capital gains or income. You would think that investors would look for capital appreciation from energy stocks because many move with the change in energy prices, but actually, there are some that pay big dividends so that you don’t necessarily have to bank on price appreciation.
Here are a few top energy stocks that have stable businesses and pay out safe and big dividends.
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Enbridge stock
Enbridge (TSX: ENB) stock has recovered meaningfully by approximately 22% from about $41.50 in October 2023 to $50.51 per share at writing. Yet, at the recent price, it still offers a high dividend yield of 7.2%.
Buyers of shares in this blue chip stock are counting on big, safe dividend income. Investors should not have high expectations on capital gains, as the stock is fairly valued.
Although the stock has had high dividend growth in the double-digit rate in the past, going forward, the dividend growth is anticipated to be much milder. Its recent dividend hikes in the past few years have been around 3% each year.
Additionally, management guides for medium-term cash flow growth to be about 5%, which should support dividend growth of 3 to 5%. Therefore, over the next few years, investors could approximate total returns of roughly 10 to 12% per year.
Enbridge is a good investment to consider for conservative investors, especially on meaningful market corrections.
Parex Resources
Parex Resources (TSX: PXT) is another energy stock that has a big dividend. Unlike Enbridge that has a defensive portfolio of energy infrastructure assets which generate diversified, stable, and highly contracted cash flows, Parex Resources is an oil and gas producer in Colombia.
Interestingly, Parex Resources maintains low leverage and has been able to consistently buy back shares and reduce its number of outstanding shares. For example, over the last five years, it reduced its share count by close to 29%.
Parex Resources also started paying a dividend in 2021 and has been increasing the dividend every year. The quarterly dividend has tripled since then. Though, recent dividend growth has slowed with the most recent dividend hike at 2.7% in May.
At $21.17 per share at writing, the energy stock offers a dividend yield of almost 7.3%. Furthermore, the stock is meaningfully undervalued with analysts believing that upside of over 40% is possible over the next 12 months. Even if that didn’t materialize, and investors got only half of that upside – 20% gains – that would still be a satisfying return in addition to the dividend.
Brookfield Renewable Partners
Investors should experience decent growth from Brookfield Renewable Partners L.P. (TSX: BEP.UN), which targets to grow its funds from operations per unit by more than 10% per year and its cash distribution by 5 to 9% per year. The growth will come from optimizing assets from its operational and development expertise, acquiring assets at good valuations, and recycling capital from de-risked assets.
Brookfield Renewable is a leading renewable energy stock with full-service platforms in all major markets. It operates in about 30 power markets across more than 20 countries. Overall, management targets to deliver long-term total returns of 12 to 15% per year.
Sure enough, Brookfield Renewable Partners has increased its cash distribution for about 14 consecutive years with a 10-year cash distribution growth rate of 5.7%. Its last cash distribution hike was 5.2% in February.
At the recent price of $33.70 per unit, BEP offers a cash distribution yield of about 5.8%, and analysts believe the stock is discounted by about 21%.
