In this article, we discuss 11 best energy dividend stocks to invest in. You can skip our detailed analysis of the energy sector, its previous performance, and outlook for this year, and go directly to read 5 Best Energy Dividend Stocks To Invest In.
The energy sector in the US remained stable in 2022 due to high prices and tight supplies. The sector ended the year with record gains, soaring 58% as of December 30, compared with a roughly 20% decline in the S&P 500. According to Dow Jones Market Data, this was the first time ever for the energy sector to emerge as a solo winner of the S&P 500 calendar year. Moreover, it was the benchmark’s only sector that did not decline during the year.
One of the main factors that contributed to the solid performance of the energy sector last year was the rising oil and gas prices. Analysts are expecting the trend to continue this year as well. Craig Erlam, a senior market analyst for OANDA in New York, talked to Fox Business about the energy industry’s outlook for 2023. He asserted that many geo-political tensions could still keep the oil and gas prices elevated this year. He further mentioned that though fluctuating market conditions could not reveal a clear picture, the energy sector is still in a good shape amid a slow global economy.
The outperformance of the energy industry is driving investors toward the sector as energy companies have steadily raised their dividends over the last 12 months, as reported by Wall Street Journal. The report also mentioned that these payouts would still hold an effect even if the economy enters a recession. In addition to this, investors also tend to focus on companies that have strong free cash flow generation. According to a report by Fidelity, free cash flow yields in the energy industry were at their all-time high relative to the broader market at the end of 2022. Moreover, many energy companies have significantly reduced their debts over the past two years and are now returning cash to shareholders through dividends and share repurchases.
Exxon Mobil Corporation (NYSE:XOM), NextEra Energy, Inc. (NYSE:NEE), and Devon Energy Corporation (NYSE:DVN) are some popular energy companies that pay dividends to shareholders. In this article, we will further discuss the best energy dividend stocks to invest in.
11 Best Energy Dividend Stocks To Invest In
Our Methodology:
For this list, we first selected dividend stocks from the S&P 500 Energy index and shortlisted stocks with dividend yields above 2.5%, as of February 25. These companies also pay regular dividends to shareholders. Next, these companies were sorted using Insider Monkey’s proprietary hedge fund sentiment data as of Q4 2022. The list is ranked in ascending order of the number of hedge funds having stakes in the companies.
ONEOK, Inc. (NYSE:OKE) is an American diversified company that specializes in the transmission of natural gas. On January 18, the company declared a 2.1% hike in its quarterly dividend to $0.955 per share. It has been making regular dividend payments to shareholders for the past 25 years. The stock has a dividend yield of 5.65%, as of February 25.
In January, JPMorgan upgraded ONEOK, Inc. (NYSE:OKE) to Overweight and also lifted its price target on the stock to $75. The firm mentioned that the company could benefit from the growing oil prices this year as well.
In addition to Exxon Mobil Corporation (NYSE:XOM), NextEra Energy, Inc. (NYSE:NEE), and Devon Energy Corporation (NYSE:DVN), OKE can be a good investment option for income investors.
As of the close of Q4 2022, 25 hedge funds tracked by Insider Monkey reported owning stakes in ONEOK, Inc. (NYSE:OKE), compared with 29 in the previous quarter. The collective value of these stakes is over $273.8 million. Among these hedge funds, Citadel Investment Group was the company's leading stakeholder in Q4.
Kinder Morgan, Inc. (NYSE:KMI) is a Texas-based energy infrastructure company that owns and controls oil and gas pipelines. In December, Citigroup initiated its coverage of the stock with a Neutral rating and a $19 price target, appreciating the company's constructive cash flow outlook.
On January 18, Kinder Morgan, Inc. (NYSE:KMI) declared a quarterly dividend of $0.2775 per share, in line with its previous dividend. The company is one of the best energy dividend stocks on our list as it maintains a 5-year streak of consistent dividend growth. The stock's dividend yield on February 25 came in at 6.36%.
In the fourth quarter of 2022, Kinder Morgan, Inc. (NYSE:KMI) reported revenue of $4.6 billion, which showed a 3.4% growth from the same period last year. The company's distributable cash flow for FY22 amounted to nearly $590 million.
At the end of December 2022, 34 hedge funds in Insider Monkey's database owned investments in Kinder Morgan, Inc. (NYSE:KMI), worth over $1.11 billion collectively.
The Williams Companies, Inc. (NYSE:WMB) is an Oklahoma-based company that deals in natural gas processing and transportation. In FY22, the company reported an adjusted net income of $2.22 billion, up 34% from 2021. The company's cash flow from operations amounted to nearly $5 billion, showing a 24% year-over-year growth.
The Williams Companies, Inc. (NYSE:WMB), one of the best energy dividend stocks, currently pays a quarterly dividend of $0.425 per share. The stock has a dividend yield of 5.74%, as of February 25. The company has been raising its dividends consistently for the past six years.
In January, Capital Advisors appreciated the overall performance of The Williams Companies, Inc. (NYSE:WMB) and upgraded it to Overweight with a $36 price target.
As of the close of Q4 2022, 34 hedge funds tracked by Insider Monkey owned stakes in The Williams Companies, Inc. (NYSE:WMB), compared with 35 in the previous quarter. These stakes have a consolidated value of over $286.6 million.
Longleaf Partners mentioned The Williams Companies, Inc. (NYSE:WMB) in its Q2 2022 investor letter. Here is what the firm has to say:
“The Williams Companies, Inc. (NYSE:WMB) – US natural gas pipeline operator Williams contributed as it benefitted from positive natural gas tailwinds in the quarter. After scaling back the position in the first quarter, we sold the remaining position in the quarter as its price reached our appraisal value. This was a very successful investment that was extremely contrarian in 2019 and now has become much more consensus appreciated.”
Phillips 66 (NYSE:PSX) is an American multinational petroleum refineries company. On February 8, the company declared a quarterly dividend of $1.05 per share, up 8.2% from the previous dividend. This marked the company's 12th consecutive year of dividend growth. The stock's dividend yield on February 25 came in at 4.12%. PSX is among the best energy dividend stocks to invest in.
In the fourth quarter of 2022, Phillips 66 (NYSE:PSX) reported a strong cash position. The company generated $4.8 billion in operating cash flow. At the end of December 2022, it had over $6.1 billion available in cash and cash equivalents.
In January, Wells Fargo maintained an Overweight rating on Phillips 66 (NYSE:PSX) with a $127 price target. The firm called PSX its top pick among large-cap refineries.
Phillips 66 (NYSE:PSX) was a part of 36 hedge fund portfolios in Q4 2022, up from 34 in the previous quarter, as per Insider Monkey's data. The stakes owned by these hedge funds have a total value of roughly $820 million. With over 1.7 million shares, Citadel Investment Group was the company's leading stakeholder in Q4.
APA Corporation (NYSE:APA) is a Texas-based energy holding company that is involved in the exploration of hydrocarbons. Wells Fargo initiated its coverage on the stock with an Overweight rating and a $52 price target. The firm gave a positive outlook on the company's performance.
In the fourth quarter of 2022, APA Corporation (NYSE:APA) reported revenue of $2.38 billion, which fell by 0.8% from the same period last year but beat Street estimates by $10 million. For FY23, the company maintained its capital upstream budget between $2 billion to $2.1 billion.
On February 3, APA Corporation (NYSE:APA) declared a quarterly dividend of $0.25 per share, having raised it by 100% in September 2022. The stock has a dividend yield of 2.6%, as of February 25.
At the end of Q4 2022, 43 hedge funds tracked by Insider Monkey reported owning stakes in APA Corporation (NYSE:APA), compared with 47 a quarter earlier. These stakes are valued at over $544.8 million collectively.
Ariel Investments mentioned APA Corporation (NYSE:APA) in its Q4 2022 investor letter. Here is what the firm has to say:
“Oil and natural gas explorer, APA Corporation (NASDAQ:APA) was the top contributor to relative returns in the period. Shares traded higher on strong U.S. well performance and upbeat guidance suggesting production is back on track in the North Sea and Egypt. Management also reiterated APA’s commitment to return 60% of free cash flow to shareholders through dividends and repurchases. In our view, this suggests significant buyback activity in the upcoming quarter, highlighting an attractive return of capital.”
Valero Energy Corporation (NYSE:VLO) is a Texas-based downstream petroleum company that manufactures and markets transportation fuels. The company ceased raising its dividends during the pandemic of 2020 but maintained regular payouts through this period. On January 31, it announced a 4.1% hike in its quarterly dividend, for the first time since 2020. Its current quarterly dividend stands at $1.02 per share for a dividend yield of 3.07%, as of February 25.
Exxon Mobil Corporation (NYSE:XOM), NextEra Energy, Inc. (NYSE:NEE), and Devon Energy Corporation (NYSE:DVN) are other popular dividend stocks to consider in the energy sector.
RBC Capital raised its price target on Valero Energy Corporation (NYSE:VLO) in January with an Outperform rating on the shares, appreciating the company's recent quarterly earnings. The firm noted that the company is benefitting from strong refining margins, which is expected to continue this year as well.
At the end of Q4 2022, 47 hedge funds tracked by Insider Monkey reported owning stakes in Valero Energy Corporation (NYSE:VLO), the same as in the previous quarter. The collective value of these stakes is $978.8 million.
