Stable dividends can be an investor’s best friend and the energy sector is one of the most stable for supplying those dividends. Energy usage on all levels varies very little from year to year and regulated markets can provide very stable businesses for investors. With that in mind, I’ve assembled a list of five companies that supply great dividends that I think will be stable in the long term.
Seadrill Ltd (NYSE:SDRL)
Oil drilling can be a very volatile business. A better than expected well can send your stock through the roof and a dry well can send your stock crashing down. But supplying equipment to a growing market can be extremely stable and lucrative.
Oil is harder and harder to find both onshore and offshore, so drillers are going to greater lengths to find it. That’s led companies to oil fields in water up to two miles deep off the coasts of the U.S., Brazil, Africa, and other parts of the world. As more drilling takes place, more oil is found, creating a reinforcing loop for ultra-deepwater rig owners.
For shareholders, Seadrill Ltd (NYSE:SDRL) trades at just 10 times this year’s earnings estimates, and with new rigs coming online over the next few years, profits should continue to grow. The stock’s 9% dividend yield is among the highest on the market, but I think it’s safe in this growing energy market.
Kinder Morgan Inc (NYSE:KMI)
Another play on the energy market that’s safer than betting on explorers is with the companies transporting oil and gas from place to place. Kinder Morgan Inc (NYSE:KMI) owns oil and gas pipelines, processing stations, terminals, and other energy assets. The company makes money by moving oil and gas from processing sites to refiners, in many cases in regulated markets, providing stable returns. As shale production in the U.S. increases there will be expanded opportunities for Kinder Morgan to grow and diversify its assets.
The stock pays a 4% dividend yield; with the stability of the oil and gas markets investors can count on payouts for a long time to come. Another way to play this company is with Kinder Morgan Energy Partners LP (NYSE:KMP), which pays a 6% dividend yield. The difference is, Kinder Morgan Partners is an MLP so it has different tax consequences than its parent Kinder Morgan Inc (NYSE:KMI), something you can learn more about here.
Total
In the oil production space, Total is one of the biggest players and it is well-positioned for a changing energy landscape in the future. The company is one of the largest players in liquefied natural gas, supplying an increasing amount of the energy to Asia. It is also majority owner of solar leader SunPower Corporation (NASDAQ:SPWR), which gives it a foothold in an emerging part of renewable energy.
Total’s stock trades at just 8.4 times trailing earnings and investors get a 5.4% dividend yield to go along with it.
Hawaiian Electric Industries, Inc. (NYSE:HE)
What would an energy dividend article be without at least one utility? For my utility pick I’m going halfway across the Pacific Ocean to the company supplying 95% of Hawaii’s population with electricity, Hawaiian Electric Industries, Inc. (NYSE:HE).
Below, you can see that even through the financial crisis the company made a profit for shareholders and has picked up returns recently:
HE Net Income TTM data by YCharts
To top it off, the company is a model in consistency, paying the same $0.31 quarterly dividend since 1998. That’s still a 4.5% yield at today’s stock price, not bad for a company with almost no competition and a very consistent history of payments to shareholders.
Utilities won’t be the growth engines of a portfolio the way a company like Seadrill might be, but investors are getting consistency instead. That’s why Hawaiian Electric Industries, Inc. (NYSE:HE) is on my list of top dividends.
The article The Best Dividends in Energy originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium manages an account that owns shares of SunPower, Kinder Morgan, and Seadrill. Travis Hoium personally owns shares of SunPower and has the following options: Long Jan 2015 $7 Calls on SunPower, Long Jan 2015 $5 Calls on SunPower, and Long Jan 2015 $15 Calls on SunPower. The Motley Fool recommends Kinder Morgan, Seadrill, and Total SA. (ADR). The Motley Fool owns shares of Kinder Morgan and Seadrill.
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