The energy sector continues to show optimism, with oil prices stabilizing within a narrow range, backed by consistent demand and solid inventory data. Additionally, anticipated interest rate cuts, leading to lower borrowing costs, are expected to drive economic growth and increase energy demand.
As a result, income-focused investors may find high-dividend energy stocks, such as Enbridge Inc. (ENB), ONEOK, Inc. (OKE), and Kinder Morgan, Inc. (KMI), offering yields above 3%, particularly attractive.
Energy demand, closely linked to economic growth, may rebound with lower interest rates and supportive fiscal policies. Despite uncertainties, the energy market remains resilient, adapting to geopolitical shifts and demand changes. A 4.69-million-barrel draw in U.S. crude inventories signals strong consumption, while sanctions on Russian oil and tightening EU policies could create supply constraints, driving higher prices.
As businesses innovate to enhance infrastructure efficiency, global oil demand is expected to increase by 1.0 million b/d in 2024 and 1.2 million b/d in 2025. Likewise, Henry Hub natural gas prices are forecasted to reach $2.80/MMBtu by early 2025. Furthermore, the EIA projects that power demand will rise to 4.09 trillion kWh in 2024 and 4.17 trillion kWh in 2025, signaling a promising future for the energy sector.
Considering these conducive trends, let’s analyze the fundamental aspects of the three energy picks.
Enbridge Inc. (ENB)
Headquartered in Calgary, Canada, ENB and its subsidiaries operate as an energy infrastructure company. The company operates through five segments: Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewable Power Generation, and Energy Services.
On December 3, 2024, ENB announced a quarterly dividend of $0.94 per common share, a 3% increase, payable on March 1, 2025. This marks the 30th consecutive year of dividend increases.
On October 7, 2024, ENB announced advancements in leveraging AI, in collaboration with Microsoft, to enhance safety, reduce emissions, and optimize assets. Key initiatives include real-time energy optimization, AI-powered pipeline monitoring, and intelligent automation for maintenance.
In terms of the trailing-12-month gross profit margin, ENB’s 48.64% is 6.4% higher than the 45.74% industry average. Likewise, its 13.72% trailing-12-month net income margin is 19.7% higher than the 11.47% industry average. Furthermore, the stock’s 7.86% trailing-12-month levered FCF margin is 13.4% higher than the 6.93% industry average.
ENB pays an annual dividend of $2.65, which translates to a yield of 6.40% at the current share price. Its four-year average dividend yield is 6.86%. In addition, the company’s dividend payouts have increased at a CAGR of 3.8% over the past five years. ENB has paid dividends for the past 10 years.
During the third quarter, which ended on September 30, ENB’s adjusted EBITDA was C$4.20 billion ($2.94 billion), up 8.5% year-over-year. Similarly. its adjusted earnings and earnings per common share were C$1.19 billion ($833.09 million) and $0.55, respectively.
Street expects ENB’s EPS for the quarter ending December 31, 2024, to increase 8.4% year-over-year to $0.52. Over the past six months, the stock has gained 18.8% to close the last trading session at $41.40.
ENB’s POWR Ratings reflect strong prospects. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ENB is ranked #31 out of 41 stocks in the A-rated Foreign Oil & Gas industry. It has an A grade for Momentum and a B for Stability. Click here to access additional ratings for ENB’s Growth, Value, Sentiment, and Quality.
ONEOK, Inc. (OKE)
OKE engages in gathering, processing, fractionation, storage, transportation, and marketing of natural gas and natural gas liquids (NGL) in the United States. It operates through four segments: Natural Gas Gathering and Processing, Natural Gas Liquids, Natural Gas Pipelines, and Refined Products and Crude.
On December 4, 2024, OKE announced the completion of the MB-6 NGL fractionator, adding 125,000 bpd capacity, and the full looping of the West Texas NGL Pipeline system, expanding capacity to 515,000 bpd.
On November 24, 2024, OKE announced a $4.30 billion stock-for-stock acquisition of EnLink Midstream’s outstanding publicly held common units, with each unit converted into 0.14 shares of OKE. The tax-free merger is expected to close in Q1 2025, enhancing value for stakeholders.
OKE’s 16.87% trailing-12-month Return on Common Equity is 35.6% higher than the 12.44% industry average. Similarly, the stock’s 5.48% trailing-12-month Return on Total Assets ratio is 7.9% higher than the 5.08% industry average. Its 22.89% trailing-12-month EBIT margin ratio is 17% higher than the 19.57% industry average.
OKE pays an annual dividend of $3.96, which translates to a yield of 3.89% at the current share price. Its four-year average dividend yield is 5.93%. Its dividend payouts have increased at a CAGR of 2.3% over the past five years. OKE has paid dividends for the past 26 years.
OKE’s operating income for the third quarter that ended September 30, 2024, rose 52.6% year-over-year to $1.13 billion. For the same quarter, OKE’s net income came in at $693 million, up 52.6% from the prior year’s quarter. In addition, the company’s earnings per common share increased 19.2% year-over-year to $1.18.
For the quarter ending December 31, 2024, OKE’s EPS and revenue are expected to increase 29.8% and 30.5% year-over-year to $1.53 and $6.83 billion, respectively. Over the past year, the stock has gained 49.8% to close the last trading session at $101.78.
OKE’s POWR Ratings reflect its robust fundamentals. OKE has an A grade for Momentum and a B grade for Growth. Within the Utilities – Domestic industry, it is ranked #12 out of 57 stocks. To see OKE’s rating for Sentiment, Value, Stability, and Quality, click here.
Kinder Morgan, Inc. (KMI)
KMI operates as an energy infrastructure company primarily in North America. The company operates through Natural Gas Pipelines, Products Pipelines, Terminals, and CO2 segments.
In terms of the trailing-12-month EBIT margin, KMI’s 28.39% is 45.1% higher than the 19.57% industry average. Likewise, its 43.36% trailing-12-month EBITDA margin is 25.9% higher than the 34.45% industry average. Also, the stock’s 29.04% trailing-12-month Capex / Sales is 83.9% higher than the 15.79% industry average.
KMI has paid dividends for 13 consecutive years. Its annual dividend is $1.15, which translates to a yield of 4.32% at the current share price. Its four-year average dividend yield is 6.16%. Moreover, the company’s dividend payouts have increased at a CAGR of 3.8% over the past five years.
In the third quarter that ended on September 30, 2024, KMI’s revenues totaled $3.70 billion. The company’s operating income increased 8.2% year-over-year to $1.02 billion. Additionally, its adjusted net income attributable to KMI was $557 million, while its adjusted EPS remained flat at $0.25 year-over-year.
Analysts expect KMI’s EPS for the quarter ending December 31, 2024, to increase 17% year-over-year to $0.33. Its revenue for the same quarter is expected to grow 2.3% year-over-year to $4.13 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, KMI’s stock has gained 52.1% to close the last trading session at $26.61.
KMI’s positive outlook is reflected in its POWR Ratings. It has an A grade for Momentum. It is ranked #46 out of 76 in the Energy – Oil & Gas industry. Click here to see KMI’s ratings for Growth, Value, Stability, Sentiment, and Quality.
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ENB shares . Year-to-date, ENB has gained 20.61%, versus a 24.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More…