Insights

5 Top Energy Dividend Stocks to Buy in May

Crude oil and natural gas prices have risen sharply in recent months, boosting the performance of oil and gas companies. Strong quarterly results, as well as climbing oil and gas prices, have contributed to a steep rise in the prices of energy stocks.
Still, there are stocks in the energy sector that offer handsome dividend yields right now. Let’s look at five such top stocks — Kinder Morgan (NYSE: KMI), Enbridge (NYSE: ENB), ONEOK (NYSE: OKE), MPLX (NYSE: MPLX), and Enterprise Products Partners (NYSE: EPD).
A sharp rise in oil and gas prices
A confluence of numerous factors has been driving oil and gas prices higher. The ongoing Russia-Ukraine war has substantially increased uncertainty about future supplies from Russia — a leading oil and gas producer. This heightened uncertainty has worsened the already bad demand-supply equation in the global oil markets.
As several countries have lifted travel and other restrictions related to the pandemic, the demand for oil and gas is returning. On the other hand, underinvestment in oil exploration and production projects and supply cuts from OPEC (Organization of the Petroleum Exporting Countries) means it will take some time before the oil supply gets boosted.

WTI Crude Oil Spot Price data by YCharts.
Crude oil prices have largely been hovering above $100 per barrel for more than two months. In early March, oil prices hit levels not seen in a decade.
Similarly, the near-month Henry Hub natural gas futures contract price is about to reach $8 per mmBtu (million British thermal units) — a level not seen in a decade, although the spot prices briefly rose above $23 per mmBtu in February 2021. 
Top dividend stocks
The volatility in commodity prices make energy stocks volatile as it directly impacts earnings of oil and gas producers. Even though commodity prices impact all energy stocks, their impact is limited on the earnings of midstream companies involved in the transport and storage of oil and gas. Earnings of these companies are largely tied to volumes of product moved or processed and are not directly linked to the prices of commodities being transported or stored. Midstream companies typically pay a part of the steady cash flow they generate as dividend to their shareholders, making them attractive for dividend investors.
With a yield of 5.6% as of this writing, Kinder Morgan stock ticks all the boxes for a dividend investor. The natural gas pipeline operator has been growing its earnings steadily while also strengthening its balance sheet. In the first quarter, Kinder Morgan grew its distributable cash flow (DCF) by 16% year over year, thanks to higher gas gathering and transport volumes.

KMI Dividend Yield data by YCharts.
Canadian midstream giant Enbridge offers a dividend yield of 5.9%. The company, which has increased its dividend for 25 consecutive years, generated a DCF of CA$3.1 billion in the first quarter, up from CA$2.8 billion in the year-ago quarter. 
ONEOK reported an 11% year-over-year increase in its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the first quarter. The company has been growing its dividend consistently for more than two decades, and its stock is trading at a yield of 5.7% as of this writing.
Though yields on these stocks have come down recently due to a rise in the stock prices, the yields are still higher than their respective 10-year average yields. 
Although Kinder Morgan, ONEOK, and Enbridge offer enticing yields, you can get more if you are open to investing in Master Limited Partnerships (MLPs). Top MLP MPLX offers you an eye-popping yield of 8.6%, while Enterprise Products Partners stock offers a yield of 6.8% as of this writing. MPLX’s consistent performance continued in the latest quarter when it grew its DCF 6.4% year over year to $1.2 billion. Likewise, Enterprise Products Partners, which has increased its distribution for 23 straight years, posted a strong performance in the latest quarter. 
Whether oil and gas prices will remain elevated in the future can’t be said with certainty. However, the above five stocks can continue generating solid dividend income for you in the years to come, no matter where oil prices head.
Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge and Kinder Morgan. The Motley Fool recommends Enterprise Products Partners and ONEOK. The Motley Fool has a disclosure policy. –

Crude oil and natural gas prices have risen sharply in recent months, boosting the performance of oil and gas companies. Strong quarterly results, as well as climbing oil and gas prices, have contributed to a steep rise in the prices of energy stocks.

Still, there are stocks in the energy sector that offer handsome dividend yields right now. Let’s look at five such top stocks — Kinder Morgan (NYSE: KMI), Enbridge (NYSE: ENB), ONEOK (NYSE: OKE), MPLX (NYSE: MPLX), and Enterprise Products Partners (NYSE: EPD).

A sharp rise in oil and gas prices

A confluence of numerous factors has been driving oil and gas prices higher. The ongoing Russia-Ukraine war has substantially increased uncertainty about future supplies from Russia — a leading oil and gas producer. This heightened uncertainty has worsened the already bad demand-supply equation in the global oil markets.

As several countries have lifted travel and other restrictions related to the pandemic, the demand for oil and gas is returning. On the other hand, underinvestment in oil exploration and production projects and supply cuts from OPEC (Organization of the Petroleum Exporting Countries) means it will take some time before the oil supply gets boosted.

WTI Crude Oil Spot Price data by YCharts.

Crude oil prices have largely been hovering above $100 per barrel for more than two months. In early March, oil prices hit levels not seen in a decade.

Similarly, the near-month Henry Hub natural gas futures contract price is about to reach $8 per mmBtu (million British thermal units) — a level not seen in a decade, although the spot prices briefly rose above $23 per mmBtu in February 2021. 

Top dividend stocks

The volatility in commodity prices make energy stocks volatile as it directly impacts earnings of oil and gas producers. Even though commodity prices impact all energy stocks, their impact is limited on the earnings of midstream companies involved in the transport and storage of oil and gas. Earnings of these companies are largely tied to volumes of product moved or processed and are not directly linked to the prices of commodities being transported or stored. Midstream companies typically pay a part of the steady cash flow they generate as dividend to their shareholders, making them attractive for dividend investors.

With a yield of 5.6% as of this writing, Kinder Morgan stock ticks all the boxes for a dividend investor. The natural gas pipeline operator has been growing its earnings steadily while also strengthening its balance sheet. In the first quarter, Kinder Morgan grew its distributable cash flow (DCF) by 16% year over year, thanks to higher gas gathering and transport volumes.

KMI Dividend Yield data by YCharts.

Canadian midstream giant Enbridge offers a dividend yield of 5.9%. The company, which has increased its dividend for 25 consecutive years, generated a DCF of CA$3.1 billion in the first quarter, up from CA$2.8 billion in the year-ago quarter. 

ONEOK reported an 11% year-over-year increase in its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the first quarter. The company has been growing its dividend consistently for more than two decades, and its stock is trading at a yield of 5.7% as of this writing.

Though yields on these stocks have come down recently due to a rise in the stock prices, the yields are still higher than their respective 10-year average yields. 

Although Kinder Morgan, ONEOK, and Enbridge offer enticing yields, you can get more if you are open to investing in Master Limited Partnerships (MLPs). Top MLP MPLX offers you an eye-popping yield of 8.6%, while Enterprise Products Partners stock offers a yield of 6.8% as of this writing. MPLX’s consistent performance continued in the latest quarter when it grew its DCF 6.4% year over year to $1.2 billion. Likewise, Enterprise Products Partners, which has increased its distribution for 23 straight years, posted a strong performance in the latest quarter. 

Whether oil and gas prices will remain elevated in the future can’t be said with certainty. However, the above five stocks can continue generating solid dividend income for you in the years to come, no matter where oil prices head.

Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge and Kinder Morgan. The Motley Fool recommends Enterprise Products Partners and ONEOK. The Motley Fool has a disclosure policy.

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