Investors love dividend stocks, especially high-yield companies in the energy sector, because they offer a significant income stream and have substantial total return potential. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. Let’s take a closer look at the concept of total return. Imagine you purchase a stock at $20 that offers a 3% dividend. If the stock price rises to $22 within a year, your total return is 13%. This is calculated by adding the 10% increase in stock price to the 3% dividend.
Oil prices this year have dropped to levels not seen in four years. Despite OPEC+’s effort to dial up production, the potential for strong sanctions against Iran and Russia has put the black gold back on the front burner on Wall Street. Prices for West Texas Intermediate and Brent crude surged last week, and despite recent fears over demand, the summer driving season is right around the corner. With airline travel increasingly expensive and a hassle, many will be glad to hit the road for summer travel and vacations.
We screened our 24/7 Wall St. energy dividend stock research database looking for energy stocks that pay substantial and dependable dividends. We identified four, and all appear to have significant upside potential relative to the posted target prices at some of the top Wall Street firms, which have Buy ratings on the shares. In addition, they are not solely dependent on benchmark pricing to generate revenue, which could be crucial if prices revert again.
Why do we cover high-yield energy dividend stocks?
High-yield energy dividend stocks offer investors a reliable source of passive income. Passive income is characterized by its ability to generate revenue without requiring the earner’s continuous active effort, making it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
BP
This European energy giant has the highest yield among the oil and gas integrated supermajors and is one of the world’s largest companies, measured by revenue and profit. BP PLC (NYSE: BP | BP Price Prediction) engages in the energy business worldwide.
It operates through four segments:
- Gas & Low Carbon Energy
- Oil Production & Operations
- Customers & Products
- Rosneft
BP produces and trades natural gas, offers biofuels, operates onshore and offshore wind and solar power generation facilities, and provides decarbonization solutions and services, including hydrogen and carbon capture, usage, and storage.
The company is also involved in the convenience and mobility business, which manages the sale of fuels to:
- Wholesale and retail customers
- Convenience products
- Aviation fuels
- Castrol lubricants
- Refining, Supply, and trading of oil products
- Operation of electric vehicle charging facilities
In addition, it produces and refines oil and gas and invests in upstream, downstream, and alternative energy companies, advanced mobility, bio, and low-carbon products, carbon management, digital transformation, and power and storage areas.
Raymond James has assigned an Outperform rating with a target price of $37.
HF Sinclair
This company is among the highest-yielding refinery stocks, offering a perfect way to play the sector’s rebound. HF Sinclair Corp. (NYSE: DINO) is an independent energy company that produces and markets light products, such as gasoline, diesel fuel, jet fuel, renewable diesel, and other specialty products.
It has five segments:
- Refining
- Renewables
- Marketing
- Lubricants & Specialties
- Midstream
The refining segment, which includes asphalt operations, has facilities in:
- El Dorado
- Tulsa
- Puget Sound
- Navajo
- Woods Cross
- Parco
The Renewables segment includes the operations of the Artesia, Cheyenne, and Sinclair RDUs and the Artesia PTU.
The Marketing segment includes branded fuel sales.
The Lubricants & Specialties segment comprises the operations of Petro-Canada Lubricants, Red Giant Oil, and Sonneborn, as well as specialty lubricant products produced at its Tulsa West refinery.
The Midstream segment comprises petroleum products, crude pipelines, terminals, tankage, loading rack facilities, and refinery processing units that primarily support its refining operations.
Morgan Stanley has an Overweight rating and a $50 price objective.
MPLX
Marathon Petroleum formed this diversified, large-cap master limited partnership. This company is one of the top holdings in the Alerian MLP Energy Exchange-Traded Fund and pays a healthy dividend. MPLX L.P. (NYSE: MPLX) primarily transports crude oil and refined products, with terminals in the U.S. Midwest and Gulf Coast regions, as well as natural gas gathering and processing in the Northeast, following its acquisition of MarkWest Energy in 2015.
The company’s assets include:
- Network of crude oil and refined product pipelines
- Inland marine business
- Light-product terminals
- Storage caverns
- Refinery tanks
- Docks
- Loading racks and associated piping
- Crude and light-product marine terminals
MPLX also owns crude oil and natural gas gathering systems, pipelines, natural gas, and NGL processing and fractionation facilities in key U.S. supply basins.
Raymond James has set a $60 target to accompany its Outperform rating.
USA Compression Partners
USA Compression Partners L.P. (NYSE: USAC) provides natural gas compression services under term customer contracts. While perhaps less known than its peers, this top company pays shareholders one of the largest dividends in the industry.
The company offers compression services to:
- Oil companies and independent producers
- Processors
- Gatherers
- Transporters of natural gas and crude oil, as well as operating stations
USA Compression Partners primarily provides natural gas compression services to infrastructure applications, including centralized natural gas gathering systems, processing facilities, and gas lift applications for crude oil wells.
Raymond James has another Outperform rating, with a $30 target price for this stock.
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