3 Ultra-High-Yielding Energy Stocks to Buy With $1,000

The energy sector has historically paid above-average dividends. The industry currently offers a dividend yield of around 4%. That’s the highest in the S&P 500 and well above that index’s 1.5% yield.

Many energy stocks offer even higher dividend yields, making them even more enticing options for those seeking to collect some passive income. Three energy stocks with big-time yields are Crestwood Equity Partners (CEQP 0.27%)Energy Transfer (ET 1.57%), and Enterprise Products Partners (EPD 1.16%). All of them have the potential to turn $1,000 into a lucrative income stream.

This monster yield is on rock-solid ground

Crestwood Equity Partners currently offers a 10% distribution yield. As a result, the master limited partnership (MLP) can turn a $1,000 investment into a $100 annual passive income stream. That’s more than double the roughly $40 of annual dividend income produced from a $1,000 investment in the average energy stock. Meanwhile, it’s even further above the $15 in yearly passive income earned by investing that same amount in an S&P 500 index fund.

While higher yields often carry higher risk, that’s not the case with Crestwood Equity Partners. The pipeline company generates steady income backed by fee-based contracts. Meanwhile, it only expects to pay out about half of its cash flow to support its big-time distribution this year. That will leave the MLP with enough cash to cover its expansion program with room to spare. 

Crestwood expects to produce significantly more free cash flow next year as it completes its current slate of capital projects. That could enable Crestwood to increase its distribution. It gave investors a 5% raise this year and has ample room to keep growing the payout in the future. 

The big-time payout should keep heading higher

Energy Transfer’s yield currently clocks in at 7.9%. At that rate, the MLP could turn a $1,000 investment into a $79 annual passive income stream.

The pipeline company will likely produce even more income than that in the future. Energy Transfer set a goal to increase its quarterly payout to its former peak of $0.305 per unit ($1.22 per unit annually). It has already increased the distribution by 50% this year as it works toward that goal. If it achieves that target, a $1,000 investment will produce $105 in annual passive income. 

Energy Transfer could easily afford that distribution level right now. The MLP produced enough cash to cover its big-time payout by more than two and a half times in the second quarter. That enabled it to retain $1.2 billion in cash, which it used to fund its expansion program, make a small acquisition, and repay debt. The company plans to continue retaining cash in the near term to keep expanding and reducing debt. That will put its big-time payout on a firmer foundation while giving it the fuel to potentially increase it past its former peak in the future as its expansion projects come online. 

Steadily rising income stream

Enterprise Products Partners’ payout currently yields 7%. That rate implies this MLP can turn $1,000 into a $70 annual passive income stream.

That income will likely rise in the future, given Enterprise’s historical track record. The MLP has increased its payment 74 times since its initial public offering in 1998, including in each of the last 24 years. It most recently gave investors a 5.6% raise. 

Enterprise Products Partners should have plenty of fuel to grow its payout. The MLP currently has $5.5 billion of major projects under construction that should fuel growth for the next several years. Meanwhile, it has a strong financial profile to support its continued expansion. Enterprise Products retains nearly half the cash it’s producing each quarter to finance growth. On top of that, it has one of the best balance sheets in the MLP space. That gives it ample financial flexibility to continue growing its operations and distribution. 

Passive income giants

Crestwood Equity Partners, Energy Transfer, and Enterprise Products Partners offer big-time income streams supported by their stable cash flows and solid financial profiles. Thanks to their financial strength, these MLPs have the flexibility to continue expanding their operations, which should grow their cash flows in the future. That should enable these energy companies to pay even bigger cash distributions to their investors in the coming years, making them ideal for those seeking to collect passive income.

Matthew DiLallo has positions in Crestwood Equity Partners LP, Energy Transfer LP, and Enterprise Products Partners and has the following options: short October 2022 $8 puts on Energy Transfer LP. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

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