Savvy investors should be paying close attention to the energy sector headed into the new year. Dividend stocks are making a comeback, and oil prices seem to finally be stabilizing.
On top of that, the oil and gas industry has proven to be resilient, handing out nearly $213 billion in dividends and $136 billion in share buybacks from January to mid-November in 2024. Because of this, dividend-paying stocks in the energy sector are becoming more attractive.
Companies like Enterprise Products Partners (EPD), Viper Energy Partners (VNOM), and Coterra Energy (CTRA) have received "Strong Buy" ratings from analysts, showing that there’s a lot of confidence in their future. These stocks not only offer good yields, but they also trade below the average price targets set by market experts.
With a positive outlook for oil prices and a growing focus on rewarding shareholders, it’s a great time for investors to look into strong dividend-paying stocks in the energy sector. Let’s dive in and see how these three stocks, with their high yields and growth potential, can be great options for anyone wanting steady passive income.
Enterprise Products Partners (EPD)
Enterprise Products Partners is a top player in North America’s energy industry, focusing on moving, storing, and processing natural gas (NGF25), crude oil (CBG25), and other related products. Over the past year, EPD has performed well, with shares up nearly 23% in the year to date.
Although there have been some ups and downs, EPD has a market cap of about $70 billion and a price-earnings (P/E) ratio of 12.04x, which is slightly below the sector average of 12.15x. This suggests that there could be room for growth as the market catches up to its solid performance.
EPD also offers a nice forward dividend yield of 6.5% with a payout ratio of 73.13%. The company has consistently raised its dividend for 27 years, making it an appealing choice for investors looking for income.
In its latest earnings report for the third quarter of 2024, released on Oct. 29, EPD announced net income of $1.4 billion ($0.65 per unit), which is an 8% increase from last year. The company generated $2 billion in distributable cash flow and declared a quarterly dividend of $0.525 per share. Analysts expect earnings per share (EPS) to be around $2.69 for the current fiscal year, indicating that profitability should keep growing.
Recently, EPD made some strategic moves, including buying Piñon Midstream for $950 million, which boosts its operations in the Delaware Basin and adds important natural gas gathering services. It is also expanding its Hydrocarbons Terminal along the Houston Ship Channel to meet the growing demand for NGL exports, with plans to have this up and running by late 2026.
Overall, analysts are very optimistic about EPD, giving it a "Strong Buy" rating across the board. Out of 15 analysts, 12 recommend “Strong Buy,” one suggests “Moderate Buy,” and two advise holding onto shares. The average price target is set at $34.56, indicating about 7% potential upside from where it currently sits.
Viper Energy Partners (VNOM)
Viper Energy Partners, which is a subsidiary of Diamondback Energy (FANG), focuses on buying and managing mineral and royalty interests in oil and natural gas, mainly in the busy Permian Basin.
Over the past year, VNOM has seen impressive growth, showing a year-to-date gain of 63%. Even though there have been some ups and downs recently — like a 2.4% drop over the last five days — the overall trend is still looking good.
With a market cap of about $9.5 billion and a forward P/E ratio of 25.9x, VNOM is priced for growth compared to the sector average of 12.10x. The company offers a forward dividend yield of around 2.4%, with an annual payout expected to be $1.24 per share, backed by a payout ratio of 62.52%.
In its latest earnings report, VNOM announced total operating income of $209.6 million and net income of $109 million, which translates to earnings per share (EPS) of $0.49. The company has also raised its production guidance for the year to between 27,000 and 27,250 barrels of oil per day for 2024, indicating strong performance and confidence in its future growth.
Recently, VNOM made a significant move by acquiring mineral and royalty interests from Tumbleweed Royalty IV for about $459 million. This deal boosts Viper's asset base and fits with CEO Travis Stice's plan to consolidate high-quality assets while taking advantage of Diamondback's development strengths. This acquisition is expected to enhance Viper’s production profile and free cash flow.
Analysts are feeling very positive about VNOM, with all 13 providing “Strong Buy” ratings. Ten recommending “Strong Buys,” two suggest “Moderate Buys,” and one advises a “Hold.” The average price target is set at $56.31, which suggests there’s about 10% upside potential from where it currently stands.
Coterra Energy (CTRA)
Coterra Energy is a diverse energy company that mainly focuses on exploring, producing, and selling oil, natural gas, and natural gas liquids (NGLs). It operates mostly in important areas like the Permian Basin and Marcellus Shale.
Over the past year, CTRA has seen a modest increase of 5%, with its stock price bouncing between a low of $22.30 and a high of $28.90.
The company has a market cap of about $18.3 billion and a forward P/E ratio of 15.74x, which is higher than the sector average of 12.15x. Coterra offers a forward dividend yield of 3.3%, recently paying out a quarterly dividend of $0.21 per share with a payout ratio of 28.41%,.
In its third-quarter earnings report, Coterra reported net income of $252 million or $0.34 per share, along with cash flow from operations totaling $755 million. Coterra has raised its full-year oil production guidance by 12%, showing confidence in its ability to meet market demand.
On the strategic side, Coterra is set to acquire assets from Franklin Mountain Energy and Avant Natural Resources for $3.95 billion, which will strengthen its position in the Permian Basin. The company has also signed three new LNG agreements to sell natural gas at international prices starting in 2027 and 2028, which will help diversify their income sources.
Analysts are feeling very positive about Coterra, with a strong buy consensus among 23 analysts—18 recommending strong buys, one suggesting moderate buy, and four advising holds. The average price target is set at $32.58, indicating there’s about a 30% upside potential from where it currently stands.
Conclusion
In conclusion, Enterprise Products Partners (EPD), Viper Energy Partners (VNOM), and Coterra Energy (CTRA) stand out as solid picks for investors looking to secure steady passive income through dividends in the energy sector. With their strong buy ratings, attractive yields, and potential for capital appreciation, these stocks not only provide a buffer against commodity price volatility but also offer the promise of long-term growth, making them worthy considerations for any income-focused investment portfolio.
