The geopolitical conflict in the Middle East has pushed oil prices materially higher. The disruption being caused is likely to linger well after the conflict ends, which some market watchers fear could push the global economy into a recession. Dividend investors need to err on the side of caution right now. Which is why companies like Chevron (NYSE: CVX), Enterprise Products Partners (NYSE: EPD), Enbridge (NYSE: ENB), and NextEra Energy (NYSE: NEE) should be on your short list. Here’s what you need to know.
High oil prices are going to be a big benefit to Chevron’s top- and bottom-lines. However, that’s not the reason to buy this integrated energy giant. Oil is important to the world, and it will remain important for decades to come, but not all oil companies have proven they can pay you well through the entire energy cycle. Chevron’s dividend has been increased annually for decades; it knows how to survive through the inevitable hard times.
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Now add in Chevron’s 3.7% dividend yield, which is notably above the energy industry’s 2.3% average. A high yield and a robust dividend history still isn’t the whole story, either. Chevron also has one of the strongest balance sheets in its peer group, with a debt to equity ratio of just 0.25x. If you are looking for income you can count on when times get tough, Chevron is the type of stock you’ll want to double up on.
If a company so tied to the price of oil isn’t your cup of tea, then you’ll probably find Enbridge and Enterprise more interesting. Both run large North American midstream businesses that help to transport oil and natural gas around the world. They charge fees for the use of their energy infrastructure assets, such as pipelines, so the price of oil is less important than the demand for oil. Oil is so important to the global economy that demand tends to remain strong regardless of its price.
Enterprise is a pure-play midstream business. It has a 5.8% yield and has increased its distribution for 27 consecutive years. That’s basically as long as Enterprise has been a publicly traded entity. Enbridge’s goal is to provide the world with the energy it needs, so its portfolio expands beyond midstream assets to include regulated natural gas utilities and clean energy assets. It is a good option for those who want a clean energy hedge. Its yield is 5.4%, and it has increased its dividend, in Canadian dollars, for 31 consecutive years.
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If the geopolitical conflict in the Middle East has you on edge about oil, you can skip to the electric future with a company like NextEra Energy. This company is a mix of a regulated electric utility and a fast-growing clean energy business. Electricity demand has shifted into a higher gear thanks to soaring demand from things like electric vehicles and artificial intelligence. Meanwhile, clean energy remains a long-term growth opportunity as the world slowly shifts away from dirtier fuel sources.
NextEra Energy has a 2.7% yield, which is the lowest on this list. However, its yield is higher than the roughly 2.6% average for the utility sector. The higher yield comes despite decades of annual dividend increases and management’s projection of 10% dividend growth in 2026, followed by 6% growth in 2027 and 2028. Dividend growth investors will likely find NextEra Energy most attractive. However, given that the S&P 500’s yield is a tiny 1.1%, yield seekers may also want to take a look.
The really big takeaway from the geopolitical conflict in the Middle East is the world’s reliance on energy. As an investor, you can buy into the supply of that vital energy with a reliable dividend stock like Chevron. Or, you could focus on toll-taker businesses like Enterprise and Enbridge. If you prefer to invest in the future of energy, then Enbridge will have the edge because of its diversification. But if you think long term, electricity-focused NextEra Energy could be the best option for you given its renewable power growth prospects.
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Reuben Gregg Brewer has positions in Enbridge. The Motley Fool has positions in and recommends Chevron, Enbridge, and NextEra Energy. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
4 Dividend Stocks to Double Up On Right Now was originally published by The Motley Fool
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