Energy Stocks Could Rally as Iran/Russian Sanctions Kick In: 4 Highest-Yielding Dividend Buys
In the energy sector, dividend stocks have garnered significant attention from investors due to their capacity to deliver reliable income streams alongside promising total return potential. Total return encompasses various components such as interest, capital gains, dividends, and distributions over time. For instance, if an investor buys a stock at $20 with a 3% dividend yield that ascends to $22 within a year, the total return would amount to a commendable 13%—a 10% price gain complemented by the 3% dividend yield.
Market Overview
The energy sector lagged behind the S&P 500 throughout 2024, finishing up merely 5.72% compared to an impressive 20% gain for the benchmark index. A sharp decrease in oil prices, dropping to levels not observed in four years, has paved the way for attractive entry points for discerning investors. Furthermore, the imposition of sanctions against Russia and Iran is anticipated to provide a favorable tailwind for the sector in the coming months. While OPEC+ has attempted to bolster production, the sanctions have led to higher oil prices recently. With the summer travel season looming, a surge in demand for energy resources is expected.
Investment Strategy
In the pursuit of high-yield energy stocks that are not solely reliant on benchmark pricing for revenue, 24/7 Wall St. scoured its energy dividend stock research database to identify attractive opportunities. Four standout high-yield energy dividend stocks emerged that promise dependable dividends and substantial upside potential.
Top High-Yield Energy Dividend Stocks
1. BP PLC (NYSE: BP)
- Current Price: $29.00
- Dividend Yield: 6.65%
- Market Cap: $74.70 billion
- P/E Ratio: 204.29
- Target Price (Raymond James): $37
BP operates on a global scale, engaging in four primary segments: Gas & Low Carbon Energy, Oil Production & Operations, Customers & Products, and Rosneft. Its diversified operations include the production and trading of natural gas, biofuels, and renewable energy sources, making it a pivotal player in the transition to decarbonization solutions. BP’s extensive involvement in refining, trading, and the sale of fuels and lubricants complements its core offerings, positioning it as an attractive investment in today’s market.
2. HF Sinclair Corp (NYSE: DINO)
- Current Price: $30.56
- Dividend Yield: 6.66%
- Market Cap: $5.66 billion
- P/E Ratio: 33.00
- Target Price (Morgan Stanley): $50
HF Sinclair is an independent energy producer focused on the marketing of light products, including gasoline and diesel. Its operational divisions expand across refining, renewables, and lubricants, including renowned brands like Petro-Canada Lubricants. The company’s strategic positioning and market presence make it well-suited to capitalize on increasing energy demand while delivering solid returns to investors.
3. MPLX LP (NYSE: MPLX)
- Current Price: $52.52
- Dividend Yield: 7.56%
- Market Cap: $52.32 billion
- P/E Ratio: 12.01
- Target Price (Raymond James): $60
MPLX, a master limited partnership created by Marathon Petroleum, is focused on the transportation of crude oil and refined products. It operates terminals primarily situated in the U.S. Midwest and Gulf Coast while offering natural gas gathering and processing services in the Northeast. Its asset base includes extensive pipelines, storage facilities, and marine terminals, making MPLX a strong candidate for those looking to invest in solid, income-generating assets in the energy sector.
4. USA Compression Partners LP (NYSE: USAC)
- Current Price: $25.58
- Dividend Yield: 8.33%
- Market Cap: $2.96 billion
- P/E Ratio: 35.03
USA Compression Partners specializes in natural gas compression services, catering to a range of industry players, including oil companies and independent producers. Its services encompass centralized gas gathering systems and processing applications, demonstrating its critical role in supporting the efficient functioning of the energy supply chain. With one of the industry’s highest dividend payouts, it offers an appealing option for income-focused investors.
Conclusion
Given the current market dynamics, including sanctions affecting major oil producers and enhanced demand projected for the upcoming travel season, energy stocks present a compelling investment opportunity. By focusing on high-yield dividend payers with diversified operations, investors can position themselves to benefit from the sector’s recovery and potential price appreciation. Each of these four stocks not only offers attractive yields but also represents strategic investments in companies capable of navigating the evolving landscape of the energy sector.
