In this article we listed the best natural gas and oil dividend stocks to buy.
Energy stocks can be hot and cold, ranging from periods of strong performance to periods of relative stagnation. These stocks attract attention from investors, particularly when oil prices surge or geopolitical tension escalates, leading to increased volatility and heightened trading activity. This is what we have seen thus far this year. Energy stocks performed well in the first four months of 2024 because of increasing oil prices. However, when oil prices began to decline in May, energy stocks also fell. The energy sector is up by nearly 7% this year so far but experienced a roughly 4% drop in the past month. As of June 7, oil prices reported their third consecutive week of decline. Investors balanced OPEC+ reassurances with recent US jobs data, which reduced the likelihood of the Federal Reserve lowering interest rates in the near future. The jobs report suggested that interest rates would remain high for an extended period, which usually reduces optimism in the oil market.
While the performance of energy stocks is influenced by oil prices to some extent, the earnings of oil refiners, storage, and transportation companies are not directly dependent on these prices, according to Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. One of the main reasons for this is that these companies mainly operate on fixed margins or fee-based structures rather than being closely linked with fluctuating prices. Here are some other comments from the analyst:
“Many exploration and production companies have productive oil wells and should be able to generate solid profit margins. Since these companies tend to return capital to shareholders in the form of dividend payouts, their stocks represent an opportunity for income-orientated investors.”
Although energy stocks experienced a rally in the initial months of the year, their behavior seems to align with past patterns, as predicted by analysts. Walter Todd, chief investment officer at Greenwood Capital Associates, said that the historical trend observed in energy stocks resembles a boom-and-bust cycle: when oil prices surge, these stocks also rise, but subsequently, a supply response triggers price declines and causes these stocks to fall. That said, US oil companies are showing greater capital discipline, resulting in higher returns and lower valuations compared to the other sectors in the market.
Though oil dominates the energy market as the largest player, natural gas also holds significant importance and plays a crucial role. It serves various purposes, including power generation, heating commercial and residential buildings, and supporting industrial activities. In addition, it is relatively inexpensive compared to other fossil fuels. Its distinctive attributes have led to an expectation of continued growth in its demand. According to a report by the International Energy Agency, global gas demand is set to increase by 2.5% in 2024, equivalent to 100 billion cubic meters (bcm). The report further mentioned that the steep decline in natural gas prices after the record highs of 2022 is contributing to the rebound in gas demand.
Many oil and gas stocks provide attractive yields, making them appealing to investors who prefer high-dividend stocks. In this article, we will take a look at some of the best dividend stocks from the oil and gas sector.
A close-up of a large industrial compressor in the oil and gas industry.
Our Methodology:
For this list, we first scanned Insider Monkey’s database of 920 hedge funds, as of the first quarter of 2024. Our focus was on selecting gas and oil companies that are involved in the exploration, production, transportation, or distribution of oil and gas. From this pool of companies, we identified 13 companies that prioritize distributing dividends to their shareholders and ranked them in ascending order of the number of hedge funds having stakes in them at the end of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
13. The Williams Companies, Inc. (NYSE:WMB)
Number of Hedge Fund Holders: 26
The Williams Companies, Inc. (NYSE:WMB) is an Oklahoma-based petroleum business company that specializes in natural gas transportation and processing. On April 30, the company declared a quarterly dividend of $0.475 per share, which was in line with its previous dividend. Overall, it has been growing its dividends for eight consecutive years, which makes WMB one of the best dividend stocks from the oil and natural gas sector. The stock has a dividend yield of 4.67%, as of June 10.
In the first quarter of 2024, the company announced that its business is consistently exceeding expectations, with effective management of profitable acquisitions and organic growth leading to immediate gains. During the quarter, the company acquired six storage facilities with a combined capacity of 115 Bcf in Louisiana and Mississippi. These facilities are strategically positioned to meet the increasing demand for LNG exports and power generation. The Williams Companies, Inc. (NYSE:WMB) reported a strong cash position in the first quarter with an operating cash flow of $1.23 billion while its dividend coverage ratio clocked in at 2.6x. Its adjusted EBITDA also grew by $139 million over the past year due to its expansion projects and acquisitions. For FY24, the company expects its adjusted EBITDA to be in the upper half of its guidance range, which is between $6.8 billion and $7.1 billion. This outlook was attributed to increased natural gas demand, especially due to rising LNG export activity and significant growth in power demand from data centers.
The Williams Companies, Inc. (NYSE:WMB) has not attracted much attention from investors as it is not as big as some of its competitors in the energy midstream sector. However, the company’s dividend growth is solid and it has a significant potential to grow its payouts in the future, which offers a reliable investment opportunity for income investors. In addition, its cash generation has remained strong over the years, which has allowed it to strengthen its balance sheet further. In fact, in the most recent quarter, the company produced enough cash to cover its dividend 2.6 times. The stock has a forward P/E of 21.88 and has gained over 14.5% since the start of the year. We believe that the company is well-positioned to benefit from its expansion projects, multiple acquisitions, and growing natural gas demand.
At the end of Q1 2024, 36 hedge funds tracked by Insider Monkey reported having stakes in The Williams Companies, Inc. (NYSE:WMB), down from 46 in the previous quarter. These stakes are collectively valued at over $455.7 million. Ken Griffin’s Citadel Investment Group was the company’s leading stakeholder and remained bullish on the stock during the quarter, growing its stake by 266%.
12. Enbridge Inc. (NYSE:ENB)
Number of Hedge Fund Holders: 32
Enbridge Inc. (NYSE:ENB) is a Canadian pipeline transportation and crude oil company. It transports around 30% of North America’s crude oil production, handles nearly 20% of the natural gas consumed in the US, and operates the largest natural gas utility by volume in North America. The company has a long dividend growth streak, spanning over 29 years. It currently pays a quarterly dividend of C$0.915 per share for a dividend yield of 7.50%, as of June 10.
Enbridge Inc. (NYSE:ENB) reported growth on a year-over-year basis in nearly all segments in Q1 2024. It is one of the best dividend stocks on our list as the company’s payout is on a super safe foundation. In the first quarter of 2024, the company generated over C$3.2 billion in operating cash flow. Its distributable cash flow (DCF) jumped 9% from the same period last year to C$3.5 billion. The company was able to grow its DCF due to higher interest rates affecting floating-rate debt and new issuances and contributions from recently acquired assets. Its strong cash position enabled it to return $34 billion to shareholders through dividends over the past five years. Moreover, the company expects to distribute $40 billion in dividends in the next five years.
The oil and gas industry in Canada is experiencing significant growth, marked by record-breaking oil production and a strategic shift toward reducing dependence on US markets. We think that the company will be able to benefit from this change in the country’s oil and gas industry landscape. ENB is currently trading at a forward P/E ratio of 16.8 and is down by nearly 1.5% this year so far. Considering the company’s recent earnings, dividend policy, and significant cash flow, we think that the stock is relatively cheap.
The number of hedge funds tracked by Insider Monkey owning stakes in Enbridge Inc. (NYSE:ENB) grew to 32 in Q1 2024, from 28 in the previous quarter. These stakes are collectively valued at nearly $260 million.
11. Energy Transfer LP (NYSE:ET)
Number of Hedge Fund Holders: 32
Energy Transfer LP (NYSE:ET) ranks 11th on our list of the best dividend stocks from the oil and natural gas industry. Recently, the company revealed its agreement to purchase WTG Midstream Holdings from affiliates of Diamondback Energy (FANG), Stonepeak, and the Davis Estate for approximately $3.25 billion. The company expects that integrating WTG assets will offer expanded access to rising natural gas and natural gas liquid volumes, thus improving its Permian Basin operations and downstream businesses. Moreover, the company successfully finalized two significant deals last year. It benefits from acquisitions, providing ample momentum and positioning it to achieve an approximate 10% growth in earnings this year.
New growth projects and acquisitions have contributed significantly to volumes on the company’s assets. In the first quarter of 2024, Energy Transfer LP (NYSE:ET) reported a 44% hike in its crude oil transportation volumes while its crude oil terminal volumes were up by 10%. The company reported growth in all segments during the quarter. Its adjusted EBITDA for the quarter came in at $3.9 billion, up over 13% from the same period last year. For FY24, the company expects to generate $15.0 billion to $15.3 billion in adjusted EBITDA.
In addition to acquisitions, Energy Transfer LP (NYSE:ET) is expected to benefit from the growing trend toward electrification within the oil and gas sector, according to a report published by Bank of America. The bank released a list of stocks that are anticipated to profit from this shift, driven by advancements in AI, the expansion of data centers, and the increasing focus on electrification.
Energy Transfer LP (NYSE:ET) is one of the best dividend stocks on our list as the company has been growing its dividends for ten consecutive quarters. It currently pays a quarterly dividend of $0.3175 per share and has a dividend yield of 8.16%, as recorded on June 10. The company’s dividend is safe because of its strong cash flow generation. In Q1 2024, its distributable cash flow grew to $2.36 billion, from $2.01 billion in the prior-year period. Despite its growth projections, the stock’s forward P/E ratio of 9.42 remains below the industry median of 11.8. This shows that the stock is undervalued relative to its potential.
As of the close of Q1 2024, 32 hedge funds owned stakes in Energy Transfer LP (NYSE:ET), compared with 34 in the previous quarter, as per Insider Monkey’s database. The overall value of these stakes is over $928.6 million.
10. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 39
EOG Resources, Inc. (NYSE:EOG) is an American energy company that is engaged in the exploration of hydrocarbon. The independent oil and gas company holds a strong history of paying special dividends to shareholders. It currently offers a quarterly dividend of $0.91 per share. With a dividend yield of 3% as of June 10, EOG is one of the best dividend stocks on our list.
In the first quarter of 2024, EOG Resources, Inc. (NYSE:EOG) generated $1.2 billion in free cash flow, which was sufficient to fund its dividend payments of $525 million. The company’s operational execution continues to result in strong returns and the generation of cash flow. Its free cash flow during the quarter facilitated substantial returns to shareholders, all while upholding its industry-leading financial position. Artisan Partners highlighted the company’s position in the sector in its Q4 2023 investor letter. Here is what the firm has to say:
“On the downside in Q4, our two energy holdings, Schlumberger, the world’s largest oil services company, and EOG Resources, Inc. (NYSE:EOG), a US shale-focused E&P company, were weak along with the broader sector. EOG is one of the highest quality operators in the E&P space. EOG has a low-cost production position with a strong reserve base, giving it an advantage versus peers. Further, EOG’s management has long focused on return on invested capital and cash flow generation, distinguishing it from many of the company’s competitors, which prioritize growth over profitability. Its commitment to return excess capital to shareholders via regular and special dividends is also highly appealing, particularly in a period of rising interest rates. The company has proven its ability to create economic value for shareholders, even over the past decade that included the toughest energy commodity environment of the last 30+ years. The company’s strong balance sheet enabled it to increase production capabilities during the prior downturn.”
EOG Resources, Inc. (NYSE:EOG)’s management maintains a positive outlook for the current year, with projections indicating increased production across all of its hydrocarbon categories. Street analysts have maintained a $149.5 price target on the stock, which represents a 23% upside from its current share price. With a forward P/E ratio of 9.65, EOG appears relatively inexpensive considering its earnings, cash flow, and promising outlook.
EOG Resources, Inc. (NYSE:EOG) was a part of 39 hedge fund portfolios at the end of Q1 2024, down from 42 in the previous quarter, according to Insider Monkey’s database. The stakes owned by these hedge funds have a total value of more than $606 million. Among these hedge funds, Harris Associates was the company’s leading stakeholder in Q1.
9. BP p.l.c. (NYSE:BP)
Number of Hedge Fund Holders: 40
BP p.l.c. (NYSE:BP) is a British multinational oil and natural gas company. On May 7, the company declared an interim dividend of $0.4362 per American Depositary Share (ADS), which was in line with its previous dividend. It is one of the best dividend stocks on our list as the company has been making regular dividend payments to shareholders since 1998. The stock supports a dividend yield of 4.82%, as of June 10.
BP p.l.c. (NYSE:BP)’s earnings missed expectations in the first quarter of 2024, however, the company continued its pace of stock buybacks. During the quarter, it announced $1.75 billion share buybacks as a part of its $3.5 billion commitment for the first half of 2024. The company’s adjusted EBITDA fell by $10.3 billion, from $13.06 billion in the same period last year. Its net debt also rose to $24 billion, from $21.2 billion in the same quarter last year and its debt-to-capitalization also increased to 22% from 19.6%. S&P Global downgraded BP p.l.c. (NYSE:BP)’s credit outlook from positive to stable due to slower-than-anticipated debt reduction. This is a setback for CEO Murray Auchincloss, who has been striving to regain investor confidence.
BP p.l.c. (NYSE:BP) announced its plan to allocate 80% of surplus cash to dividends and share buybacks, which is good news for income investors. However, S&P indicated that this approach would not significantly reduce debt, contrary to their previous expectations, even in the current favorable market conditions. The company’s CEO stated his intention to transform BP into a ‘higher value company’ following its FY23 results. This plan involves boosting oil production in the medium term, expanding the liquefied natural gas portfolio by 9% by the end of 2025, and committing to increased share buybacks.
BP p.l.c. (NYSE:BP) has a forward P/E ratio of just 7.30 and analysts forecast that the company’s EPS will grow by 10% annually through the end of 2026.
According to Insider Monkey’s database of Q1 2024, 40 hedge funds held stakes in BP p.l.c. (NYSE:BP), which remained unchanged from the previous quarter. These stakes have a total value of over $2 billion.
8. EQT Corporation (NYSE:EQT)
Number of Hedge Fund Holders: 41
EQT Corporation (NYSE:EQT) is a Pennsylvania-based energy company that specializes in the production of natural gas. The company mainly came to prominence when it acquired Rice Energy in 2017 in a deal worth $6.7 billion. Since then, the shares have jumped by nearly 170%, significantly outperforming the broader market, which gained over 85% during this period. Its acquisition efforts didn’t end there as the energy company is taking steps to reintegrate a large pipeline operation back under its own management. Earlier this year, it signed a merger agreement to acquire Equitrans Midstream Corporation, aiming to form an integrated US natural gas company with an initial enterprise value of over $35 billion. This deal would give EQT ownership of the Mountain Valley Pipeline project. Since the start of the year, EQT is up by nearly 13%.
One of the main reasons for these acquisitions is that EQT Corporation (NYSE:EQT) is concentrating on expanding its scale to lower costs and boost free cash flow. The company has achieved some success in this regard. In the first quarter of 2024, it generated over $1.1 billion in operating cash flow and its free cash flow came in at $402 million. Moreover, the company ended the quarter with approximately $605 million of cash on its balance sheet. It expects to generate over $12 billion in cumulative free cash flow between 2022 and 2027. In addition, the company also managed to reduce its debt and net debt on a year-over-year basis. It currently has a debt/equity ratio of 0.36, which shows that the company’s financing is relatively stable, with a moderate level of debt compared to its equity.
EQT Corporation (NYSE:EQT), one of the best dividend stocks, currently offers a quarterly dividend of $0.1575 per share. The stock’s dividend yield on June 10 came in at 1.55%. Street analysts have maintained a $45.3 price target on the stock, which reflects an upside potential of more than 10%.
Insider Monkey’s database of Q1 2024 indicated that 41 hedge funds owned stakes in EQT Corporation (NYSE:EQT), up from 40 in the preceding quarter. These stakes have a consolidated value of over $674.5 million. With more than 2 million shares, Appaloosa Management LP was the company’s leading stakeholder in Q1.
