3 High-Yield Dividend Stocks to Buy Right Now for a Lifetime of Rising Passive Income
Energy can be one of the trickiest sectors of the stock market to navigate. Energy literally drives the global economy, from the gas in your vehicle to the electricity powering data centers for artificial intelligence (AI). But the industry can be volatile, with recessions and other events swinging commodity prices and sending companies scrambling in short order.
But if you focus on quality, you can find dependable energy sector dividend stocks with high yields. What does that look like? Three companies instantly come to mind.
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First is Energy Transfer (NYSE: ET), a massive midstream company with a 6.6% yield. And Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) are two of the world’s premier oil majors, with decades of consistency backing up their reputations and generous dividends.
Here’s a closer look at why these three stocks can deliver a lifetime of rising passive income.
1. Energy Transfer: An oil and gas midstream powerhouse
If your goal is to maximize your income from Day 1, it’s hard to do better than Energy Transfer’s staggering 6.6% yield. Its sprawling network of 140,000 miles of pipelines and storage facilities functions like a toll road, collecting fees as it moves oil and gas throughout the United States. Energy Transfer isn’t very sensitive to commodity prices; fees account for 90% of its total revenue.
Energy Transfer has a significant presence in the Permian Basin, near America’s major natural gas export hubs. It’s a significant growth opportunity as the country’s export activity continues to rise. Management’s stated goal is to grow the company’s distributable cash flow by 3%-5% annually over the long term, while maintaining a financial cushion in the payout ratio.
Energy Transfer is a master limited partnership (MLP). It doesn’t pay corporate income taxes because it passes its profits, losses, and deductions to the limited partners, the unit holders who invest in the company. If you own this stock, you may need to complete a K-1 form as part of your personal tax filing to the IRS.
2. Chevron: An integrated major built for any market
Chevron is one of the world’s premier integrated oil and gas companies operating across the industry. It performs upstream operations, such as exploration and production, as well as downstream activities, like refining. That diversification helps soften the blow when commodity prices fall during recessions, though the company probably prefers higher oil prices.
The stock currently yields over 3.7%, and Chevron has increased its dividend for 39 consecutive years. That growth streak spans multiple recessions, even a global pandemic, during which oil prices fell below zero for the first time. It’s a testament to management’s ability to navigate the energy industry’s boom-and-bust cycles. Chevron also has a global footprint, which positions it for growth as global energy needs rise.
It’s hard to plan for the long term, but Chevron does have strong growth prospects. Following its acquisition of Hess last year, the company now owns a 30% stake in the Guyana Stabroek Block, one of the largest discoveries in recent history. Management anticipates the company’s cash flow growing by around 10% annually through 2030.
3. ExxonMobil: This dividend legend still has a bright future
ExxonMobil is the 800-pound gorilla in the industry, the largest oil and gas major in the United States. Like Chevron, it’s a global company with upstream and downstream operations. ExxonMobil also has an extensive dividend track record, with 43 consecutive annual increases. The stock yields 2.8%, the lowest of the three, but still nearly three times the passive income they’ll find in an S&P 500 index fund.
Due to its immense size, ExxonMobil has one of the world’s strongest balance sheets and has leaned on it during market downturns to preserve its precious dividend. Management has leaned into its oil and gas roots in recent years, acquiring Pioneer Natural Resources in late 2023 to boost its growth prospects and then focusing on efficiency to free up cash flow.
The result? ExxonMobil is sitting pretty with extensive acreage in the Permian Basin and Guyana, which should help drive oil and gas production for the foreseeable future. Even if global oil and gas demand eventually peaks, ExxonMobil and other industry giants will be able to absorb smaller players to preserve their businesses as the industry slowly consolidates. That makes ExxonMobil a safe bet for the long haul.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
3 High-Yield Dividend Stocks to Buy Right Now for a Lifetime of Rising Passive Income was originally published by The Motley Fool