3 super high yielding energy stocks to buy in 2022 and beyond

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Many investors find dividend stocks boring. After all, the best dividend-paying companies are usually mature companies with stable growth, while growth stocks usually offer significantly higher gains. Yet when markets are in correction territory, dividend-paying stocks often fare better. This is true right now.

So far this year, the S&P 500 Index has a negative total return of approximately 7%. By comparison, the ProShares S&P 500 Dividend Aristocrats ETF (NOBL -0.49% )which is an exchange-traded fund made up of dividend aristocrats, generated losses including dividends of around 2.2%.

If you’re into income investing and thinking about expanding your dividend portfolio, here are three top energy stocks to consider buying right now.

Steady growth over the years

Oil and gas stocks tend to be volatile, due to their dependence on oil prices. However, some companies in this industry have shown consistent growth over the years. Three of these companies are Enterprise Product Partners (EPD 0.07% ), Magellan channel partners ( BPM 0.08% )and MPLX ( MPLX -0.43% ). The three companies’ operating cash flow has largely been on an upward trend for more than a decade.

EPD operating cash flow (annual). Data by YCharts.

Two of them, Enterprise Products and Magellan Midstream, have been growing their operating cash for more than two decades. The steady growth can be attributed to the nature of the activities of the three companies.

All three generate a significant portion of their operating cash flow from long-term, priced contracts for the transportation and storage of oil, gas and related products. These contracts are not directly dependent on commodity prices. And contracts structured to protect companies from fluctuating commodity prices and shifts in demand help Enterprise, Magellan and MPLX generate steady cash flow.

Other factors that contribute to the steady growth of companies include huge and diverse asset bases and financial discipline.

A person looking at a stock chart on a laptop.

Image source: Getty Images.

These energy values ​​pay for ultra-high yields

In addition to financing growth projects, all three distribute a portion of their cash to shareholders. As of this writing, Magellan shares are trading at an attractive dividend yield of nearly 8.3% while MPLX is offering an 8.1% yield. Shares of the company have a yield of 6.9%.

EPD Dividend Yield Table

EPD dividend yield. Data by YCharts.

Additionally, companies have been steadily increasing their payouts for years, as shown in the chart above. Note that all three are Master Limited Partnerships (MLPs), and investing in these can lead to tax headaches.

While high returns are usually associated with high risk, this is not the case with these three stocks. All companies have their payments well covered by operating cash flow.

In 2021, Enterprise’s distributable cash flow (DCF) was 1.7 times the distributions it paid. (DCF is a common metric used to gauge the ability of MLPs to maintain or increase their distributions.) For Magellan, the ratio of its DCF to distributions paid was 1.2 times. Similarly, for MPLX, its DCF was 1.4 times the distributions it paid for the year. Thus, the three companies have their payments well covered, which shows their ability to maintain dividends in the years to come.

While these companies have historically generated growing cash flow, investors today are concerned about their ability to continue to do so. But the worries could be overstated. Not only is the demand for oil here to stay, but energy companies are also finding ways to participate in the growth of clean energy.

All in all, you can relax and enjoy a strong and growing revenue stream from Enterprise Products Partners, Magellan Midstream Partners and MPLX for years to come.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging 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 wealthier.

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