Two High-Return Energy Investments Suitable for Purchasing with $1,000 and Maintaining Indefinitely
Energy stocks, being tied to commodities like oil and natural gas, can be quite volatile. Add to that the rising importance of clean energy worldwide, and you've got a complex investing landscape. Here's a look at two high-yield energy stocks that could benefit from these trends: TotalEnergies and Enbridge.
Navigating the Energy Minefield
The energy industry's volatility was on full display when West Texas Intermediate (WTI) crude oil dipped below zero during the coronavirus pandemic's darkest days. While this particular price drop was extreme, sharp swings are common in the industry. On the positive side, just a couple of years later, WTI was trading above $100 a barrel.
A longer-term trend to consider is the growing popularity of clean energy sources. Although oil and natural gas are still dominant players, the world is moving toward cleaner alternatives. Renewable energy sources like solar and wind are seeing explosive growth, albeit from a small base.
If you're a dividend investor looking for a buy-and-hold strategy in the energy sector, you'll want to keep these factors in mind. Here's how TotalEnergies and Enbridge fit the bill.
Structural Strength and Clean Energy Bet
TotalEnergies, one of the world's largest integrated power companies, boasts a diversified portfolio covering the entire energy spectrum, from upstream (oil production) to midstream (pipelines) to downstream (chemicals and refining). This diversification helps mitigate the numerous challenges faced by the industry. The company's 5.5% dividend yield, despite having to pay taxes to U.S. investors, makes it an attractive investment option.
What sets TotalEnergies apart is its commitment to clean energy. While competitors like BP and Shell also made this pledge, they slashed their dividends when announcing their plans. However, TotalEnergies maintained its dividend, recognizing the importance of dividend income to its investors.
This focus on clean energy has paid off: TotalEnergies' integrated power business grew by 20% year over year in the first nine months of 2023, making up around 10% of adjusted net operating income. With profits from its traditional energy business funding its clean energy expansion, TotalEnergies is effectively hedging against the future shift to clean energy.
A Midstream Crown Jewel
Enbridge, a North American midstream powerhouse, owns critical energy infrastructure, such as pipelines. This ensures a steady revenue stream through the use of its assets. Its impressive 6% dividend yield and three decades-long history of dividend increases make it a staple for income-focused investors.
Enbridge is also evolving with the times. It's decreasing its reliance on oil by investing in natural gas and cultivating a small but growing clean energy business. With a focus on sustainability, Enbridge is following the same strategy as TotalEnergies – using profits from its traditional energy sources to fuel its clean energy future.
Long-Term Focus and Simplicity
If you're considering the energy sector today, keep in mind its volatile nature and the shift towards clean energy. Both TotalEnergies and Enbridge offer high-yield dividends and wisely adapt to these trends. If you prefer a buy-and-hold strategy, these stocks are worth considering.
Enrichment Data Integration:
To amplify your investment strategy, consider the following insights:
- Diversification: Invest in sector-specific ETFs like the Energy Select Sector SPDR Fund (XLE) for a diverse portfolio, or opt for index funds that track the entire energy industry to minimize company-specific risks.
- Asset quality: Focus on companies with high-quality assets and operations, which can yield better long-term performance.
- Renewable energy integration: Look for companies like TotalEnergies and Enbridge that are already investing in clean energy sources or plan to do so in the near future.
- Free cash flow: Focus on companies with strong free cash flow runways and low payout ratios to sustain their dividends throughout market cycles.
- Long-term investment horizon: Adopt a patient investment approach and consider companies that are effectively adapting to the global energy transition.
By incorporating these strategies, you can build a resilient and adaptable energy portfolio that can thrive in a rapidly evolving market.
- When contemplating an investment in the volatile energy sector, strategically considering high-yield dividend stocks like TotalEnergies and Enbridge could be beneficial, given their resilience and focus on clean energy.
- For dividend investors seeking a long-term, buy-and-hold approach in the energy sector, balanced portfolios that include companies demonstrating a commitment to energy diversification and clean energy investments, such as TotalEnergies and Enbridge, are worthy of consideration.
