Buy These 3 High-Yield Energy Stocks Now and Let the Dividends Compound Forever

One day, the geopolitical conflict in the Middle East is easing, the next it is escalating. It is difficult to keep up, and investor emotions are running high, leading to material swings on Wall Street. If you are looking for high-yield energy stocks that you can comfortably hold through this difficult period, you’ll want to look at Chevron (CVX 0.40%), Enterprise Products Partners (EPD +0.65%), and Brookfield Renewable Partners (BEP +0.17%). Here’s why.

Chevron is a survivor

Chevron is one of the world’s largest energy companies, operating with an integrated business model. That means that it is diversified across the entire energy value chain, from production to transportation to refining and chemicals. It is also geographically diverse, with assets spread across the globe.

This diversification is important, since different segments of the energy sector perform differently through the full energy cycle. And different areas of the world have different business dynamics, as well. The Middle East conflict is a great example, since it isn’t impacting production in the United States. On top of the diversification, Chevron also has an incredibly strong balance sheet, which allows it to take on debt during bad energy markets so it can continue to support its business and dividend until conditions improve.

The model works, noting that Chevron has increased its dividend annually for more than a quarter-century. You could buy it at a better price if you wait for a deep energy market downturn, but Chevron is almost always a good choice in the energy sector. The yield is a well above market 3.8% today.

Enterprise sidesteps commodity risk

While Chevron has exposure to the entire energy sector, Enterprise is focused on just the midstream segment. It owns a huge portfolio of North American energy infrastructure assets. It charges customers fees for using its assets. The price of what is moving through its midstream system is far less important than the volume it is moving. Given the importance of energy to the world economy, demand is highly resilient, so volumes tend to remain robust throughout the energy cycle.

As a master limited partnership, Enterprise’s corporate structure is designed to pass income on to unitholders. It has a huge 5.9% distribution yield. The distribution has been increased annually for 27 years, which is basically as long as Enterprise has been publicly traded. It is a very reliable income stock.

While the MLP has nearly $5 billion in capital investment plans, it is still just a slow-and-steady tortoise. The yield will likely make up the lion’s share of your return over time. However, if you are a dividend lover, that probably won’t be a problem for you.

Brookfield Renewable is providing the energy of the future

What if you want to branch out from oil? Then you might find Brookfield Renewable Partners and its 4.5% distribution yield of interest. This partnership owns and operates a global portfolio of clean energy assets, including hydroelectric, solar, wind, storage, and nuclear power. You basically get exposure to every major clean energy technology in one investment. The power it generates is sold under long-term contracts, supporting the distribution and over a decade of regular distribution increases.

The one potential problem here is that Brookfield Renewable is a very active portfolio manager. So it is always buying, selling, and building clean energy assets. You can’t look at it the same way you would a regulated electric utility, which wouldn’t change its production profile nearly as quickly. Notably, Brookfield Renewable has plans to invest up to $10 billion on growth over the next five years, with a significant portion of that expected to be covered by asset sales.

Compound the dividends for the best results

There are two ways to look at Chevron, Enterprise, and Brookfield Renewable. If you need the income today, you can just collect the dividends and use them to pay your bills. Or you can reinvest them, letting them compound over time as they supercharge your returns. If you ever do need the income, you can just stop dividend reinvesting. Of course, after years of compounding, the size of the income stream you generate in the future could end up surprising you.