Energy stocks are getting stronger as oil prices gush higher. Granted, 2023 didn’t begin as strongly for the sector with prices cooling. However, the pendulum is swinging back in the energy sector’s favor as oil prices again rise. High-yield energy shares – in this case, defined by being greater than 4.5% with the exception of two firms – are thus moving into a period of strength. In fact, here are seven high-yield energy stocks you may want to buy and hold immediately.
Williams Cos. (WMB)
One of the high-yield energy stocks to consider is Williams Cos. (NYSE:WMB), which operates natural gas infrastructure. Thus, rising oil prices would seemingly not matter in relation to its prospects. However, there is a noted positive correlation between the two. That means rising oil prices are still pertinent. Further, evidence suggests that natural gas prices will also rise.
In addition, Williams’ dividend yields 5.3%, and was last reduced in 2017. It’s highly unlikely to be reduced again soon given that the company’s net income nearly doubled through the first half of this year. Net income grew by 36% in the second quarter, which is still very strong despite the sequential decline. With prices set to increase, there’s little reason to fear any reduction soon.
Devon Energy (DVN)
Analysts believe, on average, that Devon Energy (NYSE:DVN) should run at least 28% higher, without the inclusion of its dividend. Add that in and the returns could be substantially greater.
However, it’s difficult to estimate how much that dividend will be because Devon Energy pays a fixed-plus-variable dividend to shareholders. In 2022, each of those quarterly dividends was greater than $1 due to surging oil prices. This year, those dividends have fallen from $0.89 to $0.72, and then to $0.49. Yet, oil prices are headed up again, which could lead to dividend hikes.
Devon Energy offers a feast-or-famine proposition to its shareholders that differentiates it from other energy firms. In general, major oil firms pay steady, dependable dividends whether times are good or bad. Devon Energy rewards shareholders in an outsized manner when the getting is good. That’s what makes it especially exciting at the moment.
Pembina Pipeline (PBA)
Pembina Pipeline (NYSE:PBA) is a midstream oil and natural gas stock in Alberta. The company deals with crude oil, tar sands oil, and the transmission thereof. The prospect of higher prices will prompt more drilling which in turn should lead to greater throughput for midstream firms including Pembina Pipeline.
I think what’s especially attractive about Pembina Pipelines is the fact that its dividend yields a high 6.7%. That said, the payout ratio is 0.54 which is very healthy and the firm hasn’t reduced the dividend since 1998. It’s fair to say that investors can rely on PBA shares for relatively high, sustainable income production.
Pembina has performed pretty much as you might have expected it to in 2023. Revenues have fallen by roughly a third. As a result, it has had to cut expenses in order to try and maintain earnings and pay for things like dividends. Same story here: Its prospects are getting brighter quickly because top-line results are set to improve.
Comstock Resources (CRK)
Comstock Resources (NYSE:CRK) is an east Texas upstream natural gas and oil firm and stock that yields 4.5%. The bet here is that natural gas and oil prices rebound moving forward. That is the primary catalyst for the firm. Natural gas prices have fallen through the first half of the year and were especially weak in the second quarter. The result was that Comstock Resources’ revenues fell by 56% in H1 and more than 73% in Q2.
Earnings dropped from $1.60 to -$0.17 in Q2. However, natural gas and oil prices are showing signs of reversal. The company continues to drill wells in the Haynesville basin and completed The company has proven that it is very good at the upstream business. It gets wells online and produces oil. The other half of that equation is prices which are largely out of its control. Luckily, the other half of the equation is turning in its favor.
Suncor Energy (SU)
Suncor Energy (NYSE:SU) continues to increase production while suffering from lower prices. Second quarter total upstream production increased by 3% in the second quarter. However, earnings plummeted by 53% during the period.
Expectations regarding energy prices are the clearest bright spot for investors at the moment. However, the company also managed to reduce its debt load by more than $1.3 billion between Q2 ‘22 and Q2 ‘23. The company sold its UK E&P assets for $607 million and focused on leaner operations during Q2. Suncor Energy is a leading tar sands producer which is where the firm gets the majority of its revenues. Oil sands have a relatively high return on an energy basis. It requires roughly 1 barrel of oil to produce 4 barrels of oil in return from the sands which is higher than shale, for example.
BP (BP)
BP (NYSE:BP) is primarily known as an Oil Major stock with a progressive carbon reduction strategy relative to its U.S. counterparts. The firm is headquartered in London and by association, European in its thinking. That means it has been quicker to respond to carbon reduction initiatives than its U.S. competitors.
The company is ultimately an oil firm. It will continue to implement carbon reduction strategies more quickly than U.S. firms but it still depends on oil for the time being. Oil production accounts for the majority of BP’s profits. It’s also massive and capable of taking advantage of rising prices. As oil and gas prices increase capital will flow into BP shares as demand rises.
Yet, at the same time, BP is firmly focused on the future. That means its strategy includes a greater reliance on natural gas and carbon reduction. Lower energy prices in the first half of 2023 were a boon to BP’s gas & low carbon segment which picked up the slack and produced surging profits. The company strikes a nice balance overall that smooths the difficulty of volatile energy prices.
Chevron (CVX)
Chevron (NYSE:CVX) stock is essentially the antithesis of BP. The company’s results are dependent on oil production and prices first while it only nominally focuses on carbon reduction.
Chevron is investing in future-forward energy production. However, it hasn’t resulted in earnings. All earnings come from upstream and downstream production while it loses money by investing in future-forward technology. That truth has played out again and again and is evidenced in its cash flow summary.
Chevron shares have been flat overall for the past 4 months. They may fall slightly in the very near term because of economic worries due to interest rates but shares are going to rise. With Chevron, a lot of the appeal in investing is in the steady dividend. However, it’s logical to also expect energy stocks to rise moving forward: Tech stocks are facing a sell-off so investors are pivoting. Energy stocks are a logical destination as oil and gas prices rise.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
