The energy sector has skilfully navigated geopolitical tensions and macroeconomic uncertainties, positioning itself for sustainable growth. Strategic cost reductions and disciplined capital management are driving resilience, while potential interest rate cuts and favorable energy policies in 2025 create a supportive outlook.
Therefore, income investors may find high-yield energy stocks like Enterprise Products Partners L.P. (EPD), Energy Transfer LP (ET), and MPLX LP (MPLX), offering dividend yields above 5%, particularly appealing.
The energy sector stands out with its high dividends, robust buybacks, soaring profit margins, and captivating investors. Over four years, capital expenditures surged 53%, fueling growth, while $213 billion in dividends and $136 billion in buybacks cemented its appeal. Projects like the Matterhorn Express Pipeline enhance natural gas transport, boosting reliability.
Innovations in digitalization, infrastructure efficiency, and cost management sharpen profitability. M&A activities stabilize production and unlock long-term potential. Moreover, with global oil demand projected to rise by 1.0 million b/d in 2024 and 1.2 million b/d in 2025, and Henry Hub natural gas prices forecasted to hit $2.80/MMBtu by early 2025 due to winter demand, the prospects look bright.
This increasing LNG demand, particularly from growing data center energy needs, propels this industry into a new era of opportunity. Considering these conducive trends, let’s analyze the fundamental aspects of the three energy picks.
Enterprise Products Partners L.P. (EPD)
EPD provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. It operates in four segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services.
On October 28, 2024, EPD completed its acquisition of Piñon Midstream for $950 million in cash, expanding its operations in the Delaware Basin.
On October 2, 2024, EPD declared a quarterly cash distribution of $0.53 per unit for Q3 2024, marking a 5% increase from Q3 2023. Additionally, the company repurchased $76 million of its common units in Q3 2024, bringing total buybacks to $252 million for the year.
In terms of the trailing-12-month Return on Common Equity, EPD’s 20.87% is 69.1% higher than the 12.34% industry average. Likewise, its 7.79% trailing-12-month Return on Total Assets is 53.2% higher than the 5.09% industry average. Furthermore, the stock’s 0.78x trailing-12-month asset turnover ratio is 65.4% higher than the 0.47x industry average.
EPD pays an annual dividend of $2.10, which translates to a yield of 6.40% at the current share price. Its four-year average dividend yield is 7.46%. In addition, the company’s dividend payouts have increased at a CAGR of 4.9% over the past three years. EPD has paid dividends for the past 26 years.
During the third quarter, which ended on September 30, EPD’s total revenues increased 14.8% year-over-year to $13.78 billion. The company’s operating income stood at $1.78 billion, up 5% year-over-year. Its net income attributable to common unitholders and earnings per common unit amounted to $1.42 billion and $0.65, representing increases of 7.5% and 8.3% year-over-year, respectively.
Street expects EPD’s EPS for the quarter ending March 31, 2025, to increase 5.9% year-over-year to $0.71. Its revenue for the same quarter is expected to grow marginally year-over-year to $14.85 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 23.3% to close the last trading session at $32.46.
EPD’s POWR Ratings reflect strong prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
EPD is ranked #5 out of 22 stocks in the B-rated MLPs - Oil & Gas industry. It has an A grade for Momentum and a B for Value and Stability. Click here to access additional ratings for EPD’s Growth, Sentiment, and Quality.
Energy Transfer LP (ET)
ET provides energy-related services. It owns and operates approximately 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities, and two natural gas storage facilities in Texas and Oklahoma. Additionally, it manages 19,945 miles of interstate natural gas pipeline.
On December 6, 2024, ET announced a positive final investment decision for the Hugh Brinson Pipeline, connecting the Permian Basin to key markets. The pipeline, expected to be completed in two phases, will provide additional natural gas transportation capacity and is backed by long-term commitments, with an estimated cost of $2.7 billion.
On October 28, 2024, ET announced a 3.2% increase in its quarterly cash distribution to $0.32 per common unit for Q3 2024. The distribution will be paid on November 19, 2024, to unitholders of record as of November 8, 2024.
ET’s 15.72% trailing-12-month Return on Common Equity is 27.4% higher than the 12.34% industry average. Similarly, the stock’s 0.72x trailing-12-month asset turnover ratio is 52.5% higher than the 0.47x industry average.
ET pays an annual dividend of $1.29, which translates to a yield of 6.85% at the current share price. Its four-year average dividend yield is 8.06%. Its dividend payouts have increased at a CAGR of 27.9% over the past three years. ET has paid dividends for the past 18 years.
ET’s revenues for the third quarter that ended September 30, 2024, rose marginally year-over-year to $20.77 billion, and its operating income was $2.18 billion. For the same quarter, ET’s net income came in at $1.43 billion, up 37% from the prior year’s quarter. In addition, the company’s net income per common unit increased 113.3% year-over-year to $0.32.
For the quarter ending December 31, 2024, ET’s EPS and revenue are expected to increase 6.5% and 6.1% year-over-year to $0.39 and $21.79 billion, respectively. Over the past year, the stock has gained 41.7% to close the last trading session at $18.84.
ET’s POWR Ratings reflect its robust fundamentals. It has an overall rating of B, equating to a Buy in our proprietary rating system.
ET has an A grade for Momentum and a B grade for Value, Stability, and Sentiment. Within the Energy - Oil & Gas industry, it is ranked #4 out of 77 stocks. To see ET’s rating for Growth and Quality, click here.
MPLX LP (MPLX)
MPLX primarily owns and operates midstream energy infrastructure and logistics assets. It operates in two segments: Logistics and Storage, and Gathering and Processing.
On October 29, 2024, MPLX announced a 12.5% increase in its quarterly cash distribution to $0.96 per common unit for Q3 2024. The distribution will be paid on November 15, 2024, to unitholders of record as of November 8, 2024.
In terms of the trailing-12-month EBIT margin, MPLX’s 40.99% is 109.5% higher than the 19.57% industry average. Likewise, its 52.45% trailing-12-month EBITDA margin is 53.4% higher than the 34.20% industry average. Also, the stock’s 23.20% trailing-12-month levered FCF margin is 229.8% higher than the 7.03% industry average.
MPLX has paid dividends for 11 consecutive years. Its annual dividend is $3.83, which translates to a yield of 7.93% at the current share price. Its four-year average dividend yield is 9.41%. Moreover, the company’s dividend payouts have increased at a CAGR of 8.2% over the past three years.
In the third quarter that ended September 30, 2024, MPLX’s total revenues and other income increased 2.1% year-over-year to $2.97 billion. The company’s income from operations grew 10.5% over the prior-year quarter to $1.28 billion. Also, net income attributable to MPLX was $1.04 billion and $1.01 per limited partner unit, up 13% and 13.5% year-over-year, respectively.
Analysts expect MPLX’s EPS for the quarter ending December 31, 2024, to increase 6.6% year-over-year to $1.03. Its revenue for the same quarter is expected to grow 3.8% year-over-year to $3.08 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, MPLX’s stock has gained 33.8% to close the last trading session at $48.26.
MPLX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Momentum and Stability and a B for Quality. It is ranked #4 in the MLPs – Oil & Gas industry. Click here to see MPLX’s ratings for Growth, Value, and Sentiment.
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EPD shares were trading at $32.28 per share on Tuesday afternoon, down $0.18 (-0.55%). Year-to-date, EPD has gained 31.76%, versus a 28.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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