This article discusses the 6 best energy dividend stocks to invest in.
The US energy sector remained stable in 2022 due to high prices and tight supply. The sector ended the year on a record rally, surging 58% as of December 30, compared to a decline of about 20% for the S&P 500. Dow Jones Market Data was the first time the energy sector emerged as the sole winner of the S&P 500 calendar year. Additionally, it was the only sector in the benchmark that didn’t fall over the course of the year.
One of the main factors contributing to the energy sector’s strong performance last year was higher oil and gas prices. Analysts expect the trend to continue this year. Craig Erlam, Senior Market Analyst at OANDA in New York, said: What is the outlook for the energy industry in 2023? He argued that a number of geopolitical tensions could continue to push oil and gas prices higher this year. He further said that fluctuating market conditions prevented a clear picture from being given, but that the energy sector remained in good shape amid a slowdown in the global economy.
Investors are moving toward the sector as energy companies have steadily increased their dividends over the past 12 months. The report also says these payments would still work even if the economy were to hit a recession. In addition to this, investors tend to look at companies with the ability to generate free cash flow. Free cash flow yields in the energy industry were at record highs compared to the broader market at the end of 2022. Additionally, many energy companies have significantly reduced their debt over the past two years and are now returning cash to shareholders.
Exxon Mobil Corporation (NYSE:XOM), NextEra Energy, Inc. (NYSE:knee), Devon Energy Corporation (NYSE:DVN) is a popular energy company that pays dividends to shareholders. In this article, we will discuss more about the best energy dividend stocks to invest in.
Our methodology:
For this list, we first selected dividend stocks from the S&P 500 Energy Index and selected shortlisted stocks with dividend yields above 2.5% as of February 25th. These companies also pay regular dividends to their shareholders. These companies were then sorted using Insider Monkey’s proprietary hedge fund sentiment data for Q4 2022. The list is ranked in ascending order by the number of hedge funds that have stakes in the company.
Best energy dividend stocks to invest in
1. ONEOK, Inc. (NYSE:orchestra)
Number of hedge fund holders: 25
Dividend Yield as of Feb 25: 5.65%
ONEOK, Inc. (NYSE: OKE) is an American integrated company specializing in the transportation of natural gas. On January 18, the company announced that it would raise its quarterly dividend by 2.1% to $0.955 per share. We have paid regular dividends to shareholders for the past 25 years. The dividend yield is 5.65% as of Feb. 25.
In January, JP Morgan upgraded ONEOK, Inc. (NYSE:OKE) to overweight and raised its price target to $75. The company said it could benefit from rising oil prices again this year.
Along with Exxon Mobil Corporation (NYSE:XOM), NextEra Energy, Inc. (NYSE:NEE), and Devon Energy Corporation (NYSE:DVN), OKE is a great investment option for income investors.
As of the end of the fourth quarter of 2022, 25 hedge funds tracked by Insider Monkey reportedly owned shares in ONEOK, Inc. (NYSE:OKE), compared with 29 in the previous quarter. These stocks total over $273.8 million. Among these hedge funds, Citadel Investment Group was the company’s primary stakeholder in the fourth quarter.
2. Kinder Morgan (NYSE:KMI)
Hedge fund holders: 34
Dividend Yield as of Feb. 25: 6.36%
Kinder Morgan, Inc. (NYSE:KMI) is a Texas-based energy infrastructure company that owns and manages oil and gas pipelines. In December, Citigroup began covering the stock with a neutral rating and a price target of $19, praising the company’s constructive cash flow prospects.
Kinder Morgan, Inc. (NYSE:KMI) on January 18 announced a quarterly dividend of $0.2775 per share, consistent with its previous dividend. The company has maintained a five-year streak of steady dividend growth, making it one of the best energy dividend stocks on the list. The stock’s dividend yield on February 25 was 6.36%.
In the fourth quarter of 2022, Kinder Morgan, Inc. (NYSE:KMI) reported revenue of $4.6 billion, representing 3.4% growth from the same period last year. The company’s distributable cash flow for FY22 amounted to approximately $590 million.
As of the end of December 2022, 34 hedge funds registered in Insider Monkey’s database owned investments in Kinder Morgan (NYSE:KMI).
3. Williams Companies (NYSE:WMB)
Hedge fund holders: 34
Dividend Yield as of Feb 25: 5.74%
Williams Companies, Inc. (NYSE:WMB) is an Oklahoma-based company engaged in the processing and transportation of natural gas. In FY22, the company reported his adjusted net income of $2.22 billion, up 34% from 2021. The company’s cash flow from operations reached approximately $5 billion, growing 24% year over year.
Williams Companies (NYSE:WMB), one of the highest energy dividend stocks, currently pays a quarterly dividend of $0.425 per share. Dividend yield as of 25th February is 5.74%. The company has consistently increased its dividend over the past six years.
In January, Capital Advisors upgraded Williams Companies (NYSE:WMB) to Overweight with a price target of $36, bolstering its overall performance.
As of the end of Q4 2022, 34 hedge funds tracked by Insider Monkey own shares in Williams Companies (NYSE:WMB), up from 35 in the previous quarter. The consolidated value of these shares exceeds $286.6 million.
Longleaf Partners mentioned The Williams Companies, Inc. (NYSE:WMB) in its second quarter 2022 investor letter. here Here is what the company has to say:
“Williams Companies Inc. (NYSE:WMB) – US natural gas pipeline operator Williams contributed, benefiting from a positive natural gas tailwind in the quarter. After reducing the position in the first quarter, we sold the remaining position in the quarter as the price reached our valuation. It was a very successful investment, very contrarian in 2019, but now appreciates more consensus. “
4. Phillips 66 (NYSE:PSX)
Hedge fund holders: 36
Dividend Yield as of Feb. 25: 4.12%
Phillips 66 (NYSE:PSX) is an American multinational oil refinery company. On Feb. 8, the company announced its quarterly dividend of $1.05 per share, an increase of 8.2% from its previous dividend. This marks the 12th consecutive year the company has increased its dividend. The stock’s dividend yield on February 25 was 4.12%. PSX is one of the best energy dividend stocks to invest in.
In the fourth quarter of 2022, Phillips 66 (NYSE:PSX) reported a strong cash position. The company generated a $4.8 billion operating cash flow. As of the end of December 2022, he had more than $6.1 billion available in cash and cash equivalents.
Wells Fargo remained overweight in January with a price target of $127 on Phillips 66 (NYSE:PSX). The company calls the PSX its top pick for large refineries.
Phillips 66 (NYSE:PSX) was part of 36 hedge fund portfolios in the fourth quarter of 2022, up from 34 in the previous quarter, according to Insider Monkey data. The total equity holdings of these hedge funds are approximately $820 million. Holding more than 1.7 million shares, Citadel Investment Group was the company’s primary stakeholder in the fourth quarter.
5. Apa Corporation (NYSE:APA)
Hedge fund holders: 43
Dividend yield as of Feb. 25: 2.6%
APA Corporation (NYSE:APA) is a Texas-based energy holding company engaged in hydrocarbon exploration. Wells Fargo has opened coverage for the stock with an Overweight valuation and a price target of $52. The company gave a positive outlook on the company’s performance.
In the fourth quarter of 2022, APA Corporation (NYSE:APA) reported revenue of $2.38 billion. That’s a 0.8% drop for him from the same period last year, but he beat Street’s estimate by $10 million. For fiscal year 23, the company maintained its upstream capital budget from $2 billion to $2.1 billion.
On February 3, Apa Corporation (NYSE:APA) declared a quarterly dividend of $0.25 per share, increasing it to 100% in September 2022. As of February 25, this stock has a dividend yield of 2.6%.
At the end of the fourth quarter of 2022, 43 hedge funds tracked by Insider Monkey reported holding shares in APA Corporation (NYSE:APA), up from 47 in the previous quarter. In total these shares are worth him over $544.8 million.
Ariel Investments referred to APA Corporation (NYSE:APA) in its fourth quarter 2022 investor letter. Here is what the company has to say:
“Oil and gas explorers, APA Co., Ltd. (NASDAQ:APA) was the largest contributor to relative returns during this period. Stocks traded higher on strong US performance and upbeat guidance suggesting production in the North Sea and Egypt is back on track. Management also reiterated his APA commitment to returning 60% of his free cash flow to shareholders through dividends and repurchases. In our view, this suggests significant buyback activity in the next quarter, highlighting an attractive return on capital.”
6. Valero Energy Corporation (NYSE:VLO)
Hedge fund holders: 47
Dividend Yield as of Feb 25: 3.07%
Valero Energy Corporation (NYSE:VLO) is a Texas-based downstream oil company that manufactures and sells transportation fuels. The company stopped increasing its dividend during the 2020 pandemic, but maintained regular payments throughout this period. On January 31, the company announced a 4.1% increase in its quarterly dividend for the first time since 2020. The current quarterly dividend is $1.02 per share, yielding a dividend yield of 3.07% as of February 25.
ExxonMobil Corporation (NYSE:XOM), NextEra Energy (NYSE:NEE), and Devon Energy Corporation (NYSE:DVN) are other popular dividend stocks to consider in the energy sector.
RBC Capital raised its price target on Valero Energy Corporation (NYSE:VLO) in January, giving it an outperform rating, lauding the company’s recent quarterly results. The company has benefited from strong refining margins, and this is expected to continue this year.
At the end of the fourth quarter of 2022, 47 hedge funds tracked by Insider Monkey reported holding shares in Valero Energy Corporation (NYSE:VLO), as they did in the previous quarter. The total value of these shares is $978.8 million.
