Here’s What $1,000 in These 6 Energy Dividend Stocks Could Pay You in a Year
Western Midstream Partners (WES +0.59%) has an 8.1% yield as of this writing. That’s the highest yield among this list of six income investments: Western Midstream, Energy Transfer (ET +0.68%), Enterprise Products Partners (EPD -0.43%), MPLX LP (MPLX +0.47%), Enbridge (ENB +1.42%), and ExxonMobil (XOM +2.71%). Exxon has the lowest yield at “just” 2.5%, which is still vastly higher than the S&P 500 index‘s (^GSPC -0.47%) 1%.
Here’s a quick look at this list and how much income a $1,000 investment in each business would generate in a year.
Most of these businesses are focused on the midstream
Midstream businesses own energy infrastructure assets such as pipelines, storage, and transportation facilities. They largely charge fees for the use of their assets, so the volume flowing through their systems is more important than the price of what is being moved. In other words, oil and natural gas prices aren’t the biggest determinant of success; demand for energy is. Demand tends to be strong even when oil prices are low and during economic downturns because the fuel is so important to the normal functioning of the world. Midstream businesses are fairly reliable income generators and often pass a significant portion of their earnings to unitholders or shareholders as distributions or dividends.
Image source: Getty Images.
That’s the basic reason why income investors will be interested in the midstream. Western Midstream, Energy Transfer, Enterprise Products Partners, and MPLX LP are all high-yield midstream limited partnerships (MLPs). Enbridge is a high-yield Canadian company that primarily operates in the midstream segment, though it also owns regulated natural gas utilities and clean energy assets.
Western Midstream Partners
Today’s Change
(0.59%) $0.27
Current Price
$45.82
Key Data Points
Market Cap
Day’s Range
$45.65 – $46.20
52wk Range
$36.90 – $50.07
Volume
584K
Avg Vol
820.7K
Gross Margin
50.79%
Dividend Yield
8.03%
A $1,000 investment in Western Midstream, as of this writing, would generate $81 in a year based on its 8.1% yield, as of this writing. MPLX LP’s yield is 7.5%, so a $1k investment would generate $75 per year in income. Energy Transfer’s yield is 6.5%, allowing investors to generate $65 per year in distributions. And Enterprise Products would generate $59 a year from a $1,000 investment, given its 5.9% yield. Enbridge’s yield is 6.1%, so it would generate $61 in a year. You can multiply that dollar figure by the number of thousands you are investing, so a $10,000 investment in Western Midstream would generate $81 x 10, which is $810 per year in income.
There are a couple of important takeaways. First, higher yields generally suggest higher risk. For example, Energy Transfer cut its distribution in 2020 (it has since returned to growth), while Enterprise Products has increased its distribution annually for 28 consecutive years. If income consistency is important to you, you may want to focus on lower-yielding options.
Enterprise Products Partners
Today’s Change
(-0.43%) $-0.16
Current Price
$36.75
Key Data Points
Market Cap
Day’s Range
$36.67 – $37.27
52wk Range
$30.01 – $40.16
Volume
3.4M
Avg Vol
3M
Gross Margin
12.98%
Dividend Yield
6.00%
Second, master limited partnerships (MLPs) come with tax complications. For example, you’ll need to deal with a K-1 at tax time, and MLPs don’t play well with tax-advantaged retirement accounts. So far, all but Enbridge are MLPs.
Enbridge represents a different complication, because it is a Canadian company. You avoid the MLP issues, but you have to pay Canadian taxes on the dividends it pays. If your broker has completed the required paperwork (you’ll have to ask), however, those taxes can be avoided by holding it in a tax-advantaged account, such as an IRA or a Roth IRA, thanks to a tax treaty between the U.S. and Canada.
Today’s Change
(1.42%) $0.65
Current Price
$46.54
Key Data Points
Market Cap
Day’s Range
$46.07 – $46.75
52wk Range
$45.02 – $58.45
Volume
3.9M
Avg Vol
4.9M
Gross Margin
25.44%
Dividend Yield
5.98%
For reference, Enbridge has increased its dividend for more than three decades. So, despite having the lowest yield so far, it may be the best choice if you are investing within a tax-advantaged retirement account. Its regulated natural gas utility assets and clean energy investments add diversification, as well.
ExxonMobil: A totally different direction
This brings the story to the final name on the list above: ExxonMobil. It is one of the world’s largest energy companies, with a globally diversified portfolio spanning the entire energy value chain, from production and midstream to chemicals and refining. It is a solid choice if you are looking for energy exposure that includes commodity exposure.
This energy industry bellwether has a 2.5% yield, so a $1k investment would generate only about $25 per year in income. However, it has increased its dividend annually for 43 years, making it the most reliable income investment on this list. But you’d have to be willing to accept the commodity risk that comes along with a large energy production business. More conservative income investors will probably be better off focusing on Enterprise and Enbridge, which sit between the high and low ends of the yield spectrum.
