After a dreadful August, West Texas Intermediate crude oil has traded back over $70 a barrel and looks to be headed to $75, as OPEC has given every indication that it will be holding current production levels to protect that $70+ price point. While most of the shut-in Gulf of Mexico production is returning to 100% since hurricane Ida, Permian Basin producers have continued to watch their production levels, as free cash flow is now the name of the game over production growth.

We screened our 24/7 Wall St. database looking for the best dividend-paying energy stocks and master limited partnerships (MLPs) rated Buy at major Wall Street firms and found four that are cheap and have some serious upside potential. We focused on companies based in the United States While all four stocks are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
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Chevron

This energy giant is a solid way for investors who are more conservative to be positioned in the sector. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas.

With the strongest financial base of the majors, coupled with an attractive relative asset base, many on Wall Street feel that Chevron offers the most straightforwardly positive risk/reward. Although current conditions do not warrant a large focus on production growth, Chevron possesses numerous medium-term drivers that should support production levels in the coming years.

Analysts feel comfortable the 5.50% dividend will remain at current levels. The BofA Securities price target for Chevron stock is $125. The analysts’ consensus target is $122.79, and the last reported trade on Wednesday was at $97.64.

Enterprise Products Partners

This is the largest publicly traded energy partnership and a leading North American provider of midstream energy services to producers and consumers. Enterprise Products Partners L.P. (NYSE: EPD) provides a wide variety of midstream energy services, including gathering, processing, transportation and storage of natural gas, natural gas liquids fractionation, import and export terminaling, and offshore production platform services.

One reason many analysts may have a liking for the stock might be its distribution coverage ratio. This ratio is well above 1 times, making it relatively less risky among the MLPs.

The company’s distributions have grown consistently over the years, and last year it announced that the board of directors of its general partner declared an increase in the quarterly cash distribution paid to partners to $0.45 per common unit, or $1.80 per unit on an annualized basis.

Enterprise Products Partners stock investors receive an 8.28% distribution. Morgan Stanley has a $30 price target, while the consensus target is $28.04. Shares closed at $21.74 on Wednesday.

This mega-cap energy leader still offers investors an incredible entry point. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
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Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

Stellar results for the second quarter were due in part to the company’s upstream segment net income, which came in above consensus estimates, rebounding sharply from the year-ago quarter’s pandemic-depressed lows. The upstream segment is involved in the exploration and development of oil and natural gas properties, as well as the extraction and production of crude oil and natural gas. It benefits from higher oil prices. Earnings and revenue continue to rebound as the global economy recovers from last year’s pandemic-induced shock.

The 6.30% dividend will continue to be defended. The $90 BofA Securities price target is well above the $66.34 consensus target. Exxon Mobil stock closed on Friday at $55.21.

MPLX

This is the top holding for the Alerian MLP energy exchange-traded fund. MPLX L.P. (NYSE: MPLX) is primarily engaged in crude oil and refined products transportation and terminaling in the U.S. Midwest and Gulf Coast regions, as well as natural gas gathering and processing in the northeast from its prior acquisition of MarkWest Energy in 2015. MPLX was formed by independent U.S. refiner Marathon Petroleum.

MPLX is one of the bigger pipeline entities, with a market capitalization of nearly $30 billion, and the company repurchased a strong $155 million in units during the second quarter. The partnership currently has approximately $657 million remaining under its board authorization and that kind of buying by management tends to keep a bid under the stock price.

Investors receive a 9.74% distribution. Raymond James has set a $33 price target on MPLX stock. The consensus target is slightly lower $32.88, and Wednesday’s closing print was $28.23.

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Two integrated mega-cap energy giants and two of the top MLPs make good sense for growth and income investors looking to add positions in energy, but who want to be cautious in what has turned into a very volatile market. It should be noted that the distributions from MLPs may contain return of principal.

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