In this article, we take a look at the 10 energy stocks with over 3% dividend yields. You can skip our detailed analysis of dividend yield in energy stocks and go directly to 5 Energy Stocks with Over 3% Dividend Yield.
The energy sector outperformed the market in 2021 seizing the top spot with a 53% return after a rebound from pandemic effects in 2020. It is still going relatively stronger in 2022 being the top performer giving positive returns according to Bloomberg. In comparison, the majority of sectors are performing negatively due to a general decline in the stock market primarily because of concerns surrounding rising interest rates.
The energy sector was the out-performer in 2021 because the economy in general started recovering from the pandemic. This was coupled with lower spending in the sector which led to demand surpassing the supply. Another attraction to investors was rising dividend yields in the sector relative to other sectors in the S&P 500 which have a dividend yield of 1.3% for the average stock. However, it’s worth noting here that the energy sector includes crude oil and gas and not renewable energy, the latter falls in the technology sector.
Given that now we’re midway in 2022, the prospects similar to the previous year for the energy sector depend on several factors. First off, the returns may come down if the gap between supply and demand narrows. But fuel prices are soaring in North America as well as across Europe because of disruption in crude oil supply chains due to the ongoing Russia-Ukraine conflict.
So, the gap between supply and demand is widening even further and we can expect the prices to soar for quite some time. Combine that with attractive dividend yields and the sector is ideal to invest in for retirees and income investors to create an attractive source of passive income.
For this purpose, we’ve listed 10 energy stocks with over 3% dividend yields. Energy companies that fall outside the S&P 500 index pay attractive dividends too. However, being in the S&P 500 index with high dividend yield is how you know an energy stock is a better investment. The sector makes up only 3.9% of the S&P 500 index weighting and the index is mostly dominated by technology companies like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN) making up 7.14%, 6.1% and 3.8% of the index, respectively, as of 2022.
Photo by Zbynek Burival on Unsplash
Our Methodology
For this list of the 10 energy stocks with over 3% dividend yields, we’ll be focusing on a number of metrics along with the dividend yield to ensure that the stock is worth its weight.
As the rationale for a decent dividend yield is to long-hold the stock for a consistent passive income with prospects for the stock rising in value, we’d be focusing on the fundamentals of the company that reflect robust potential for growth. For this purpose, we’d be using metrics like Debt to Equity (D/E) and Return on Equity.
Other than this, we’d be showcasing the hedge fund sentiment related to the stocks in question as well as analyst ratings and other news that could drive value to the stock. They’re ranked, however, based on the dividend yield alone.
10. Phillips 66 (NYSE:PSX)
Dividend Yield: 4.04% (As of May 11)
Phillips 66 (NYSE:PSX) is a Texas based multinational energy company that provides services across the US and Europe. The annual dividend yield for Phillips 66 (NYSE:PSX) is 4.04% as of May 11 with quarterly dividend of $0.92. When it comes to analyst ratings, Phillips 66 (NYSE:PSX) has an “Overweight” rating by two analysts at Wells Fargo and Pipe Sandler with stock price targets of $119 and $114, respectively.
The hedge fund sentiment surrounding the company is positive when it comes to funds like Navellier & Associates and Bailard Inc. Both hedge funds have increased their holdings in Phillips 66 (NYSE:PSX) in the first quarter of 2022. The former owns $4.7 million worth of shares in the company while the latter’s holding amounts to $1.3 million.
Fisher Asset Management is another prominent hedge fund invested in the company. Although its holding value in the company is relatively smaller than other hedge funds, at $0.68 million in Q1 2022. The company relies close to twice as much on equity than on debt given its debt to equity ratio of 0.59 by the end of the first quarter of 2022.
The company’s return on equity has been steadily improving over the past two quarters and stood at 12% at the end of the first quarter of 2022 which simply means that it has been generating more income than the amount of shareholders’ capital poured into it.
While it has the lowest yield on the list, the energy sector still provides far higher dividend yields than the technology sector where dividend yields are either extremely low or non-existent. Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN) are perfect examples of this.
9. Exxon Mobil Corporation (NYSE:XOM)
Dividend Yield: 4.06% (As of May 11)
Exxon Mobil Corporation (NYSE:XOM) is probably the most famous energy company on the list of energy stocks with over 3% dividend yields. It’s also headquartered in Texas, US. Exxon Mobil Corporation (NYSE:XOM) has a dividend yield of 4.06% as of May 11 and gives quarterly dividend of $0.88 against each of its shares.
The price target for Exxon Mobil Corporation (NYSE:XOM) was raised to $90 from $77 and $102 from $95 on May 2 at Cowen and Credit Suisse by analysts Jason Gabelman and Manav Gupta. While Manav Gupta kept a “Neutral” rating on the shares, Gabelman kept a “Market Perform” rating on the shares. The company’s return on equity was at 15.59% by the first quarter of 2022, well within the ideal range and its reliance on debt was only 24% relative to reliance on equity.
8. DT Midstream, Inc. (NYSE:DTM)
Dividend Yield: 4.94% (As of May 11)
DT Midstream, Inc. (NYSE:DTM) is distinct in the list of energy stocks with over 3% dividend yields because of its business model. It develops and operates interstate and intrastate midstream gas pipelines as well as gas storage and compression systems. Its dividend yield is 4.94%.
18 hedge funds had shares in DT Midstream, Inc. (NYSE:DTM) during the last quarter of 2021. Some of the prominent ones included Zimmer Partners and the Millennium Management as well as Citadel Investment Group.
On May 6, DT Midstream, Inc. (NYSE:DTM) announced a quarterly dividend of $0.64 which is very well covered by its cash flows. Its debt to equity ratio is also low, thereby reducing financial risk. When it comes to strategic prospects, the natural gas sub-sector looks better than crude oil and coal since it burns relatively cleaner than the latter two. Couple that with the fact that renewable energy is insufficient to meet the near to medium term energy demands.
So one of the ways forward proposed in policy is to replace coal fired power plants with gas fired ones which is expected to increase demand for natural gas in the coming years. In fact, IEA’s 2020 energy outlook forecasts the gas sub-sector to grow at the highest pace after renewable energy. Given the good fundamentals, robust outlook in the near future and an attractive dividend yield, DT Midstream, Inc. (NYSE:DTM) grabs the number 8 spot.
7. Riley Exploration Permian, Inc. (NYSE:REPX)
Forward Dividend Yield: 5.58% (As of May 11)
Riley Exploration Permian, Inc. (NYSE:REPX) provides a quarterly dividend of $0.31 per share. Riley Exploration Permian, Inc. (NYSE:REPX) is focused on exploration, refinement and development of oil and natural gas and is operational in the Permian Basin in Texas and New Mexico.
While dividend yield offered by Riley Exploration Permian, Inc. (NYSE:REPX) is high, it’s not a huge market-cap company like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN). The rationale for these companies to either pay a low dividend or pay no dividend at all is to expand and grow faster by reinvesting the cashback in company operations.
6. Kinder Morgan, Inc. (NYSE:KMI)
Dividend Yield: 6.01% (As of May 11)
Kinder Morgan, Inc. (NYSE:KMI) is a Houston based energy infrastructure company controlling and handling roughly 85,000 miles of pipelines for transportation of natural gas, crude oil, ethyl alcohol, carbon dioxide and bio-diesel. Kinder Morgan, Inc. (NYSE:KMI) also has infrastructure in place to store these fuels.
Kinder Morgan, Inc. (NYSE:KMI) is doing pretty well when it comes to earnings reports. In its 2022’s first quarter report, it boasted a revenue of $4.29 billion beating analyst expectations by a wide margin of $546 million.
That brings us to the hedge fund sentiment surrounding the stock. When it comes to Q1 2022, the leading holder in Kinder Morgan, Inc. (NYSE:KMI) happens to be First Pacific holding shares worth $157 million with Hourglass Capital a close second with holdings worth $5.5 million. Kinder Morgan pays out a quarterly dividend of $0.28 against the stock.
While Kinder Morgan, Inc. (NYSE:KMI) is a relatively smaller company than Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN), it pays a far higher dividend.
Click to continue reading and see 5 Energy Stocks with Over 3% Dividend Yield.
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Disclosure: None. 10 Energy Stocks with Over 3% Dividend Yield is originally published on Insider Monkey
