The energy sector is known for being volatile. So it shouldn’t be all that surprising that the geopolitical conflict in the Middle East has led to large swings in oil and natural gas prices. What is likely more shocking to the world is how quickly the conflict upended the global energy market, showing just how important these fuels are to the world’s normal functioning. This is why investors should be interested in high-yielders like Enterprise Products Partners (NYSE: EPD), Enbridge (NYSE: ENB), and Oneok (NYSE: OKE).
Moving oil, not producing it
Even as the world increasingly shifts toward cleaner energy sources, oil and natural gas remain in high demand. The issue the Middle East conflict exposes is the supply risk countries face when sourcing energy from unstable regions. Partnering with countries like the United States and Canada, which are both economically and politically stable, could become a much more important factor.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
The quick answer for an investor who thinks North America will see increasing demand for its energy is to buy a North American energy producer like Diamondback Energy (NASDAQ: FANG). But that still exposes you to commodity price volatility. A better choice, particularly for dividend investors, is to buy a North American midstream operator.
Midstream businesses own the energy infrastructure that moves oil and natural gas around the world. Companies like Enbridge, Oneok, and Enterprise charge fees for the use of their assets. Demand for energy is more important to their financial performance than commodity prices. If North America sees increasing demand between now and 2030, the story just gets better for these North American midstream giants.
Midstream is already an attractive dividend story
Enterprise’s distribution yield is already highly desirable, at 5.6%. Enbridge’s dividend yield is 4.9%. And Oneok’s yield is 4.5%. The S&P 500 index (SNPINDEX: ^GSPC) is only offering a yield of around 1%. However, there’s more to the story. All have long histories of annual dividend increases, with Enbridge’s streak reaching an impressive 31 years in Canadian dollars.
So you are getting a high yield from reliable income investments. And on top of that, you are getting the potential for growth that could come with shifting demand dynamics in global energy markets over the next few years. And even if demand for North American energy doesn’t materially increase between now and 2030, income investors can still collect large, reliable, and likely growing dividends. A $1,000 investment will let you buy 25 units of Enterprise, 18 shares of Enbridge, or 11 shares of Oneok.
