If you’re considering investing in the energy sector, it’s hard to avoid concerns about the shift from carbon fuels to cleaner alternatives like solar and wind power. You need to take into account the transition that is happening, but the important thing to remember is that it is a slow change.
This is why energy companies like Enbridge (NYSE:ENB) And TotalEnergies (NYSE:TTE)with their feet still firmly planted in the world of carbon energy, are two great dividend stocks to consider buying today.
The shift towards clean energy is real
Clean energy is not a fad; this is a very real threat to older, dirtier energy sources. For example, coal consumption in the United States has fallen as the use of cleaner natural gas has increased. Solar and wind energy also spread quickly. However, solar and wind are growing on a very small base, so growth rates are high, but they can still increase as a percentage of the overall energy pie.
This leaves dividend investors with something of a conundrum. Energy companies that produce oil and natural gas still generate huge cash flows and will likely continue to do so for decades. But the long-term future will likely also include significant amounts of clean energy. Fortunately, you don’t have to buy oil or clean energy stocks; There are options that allow you to benefit from the cash flow created by oil and natural gas today while also gaining exposure to clean energy.
Enbridge is a slow and steady turtle
Enbridge is one of the largest midstream companies in North America. It has a portfolio of pipelines, storage and transportation assets that would be difficult, if not impossible, to replace. It charges fees for the use of this vital energy infrastructure, providing reliable cash flow throughout the energy cycle. This is how he supports his whopping 7.7% dividend yield. Additionally, the dividend has been increased annually for 29 consecutive years. The company’s oil and gas pipelines account for approximately 85% of earnings before interest, taxes, depreciation and amortization (EBITDA).
The rest of the business consists of a natural gas utility and investments in clean energy, such as offshore wind farms in Europe. Natural gas is considered a transition fuel and burns cleaner than coal or oil. Enbridge is purchasing three other natural gas utility businesses, which will reduce the pipeline sector’s contribution to EBITDA to 75%. And it continues to invest in clean energy, which only represents about 3% of EBITDA but is expected to continue to grow in importance over time.
Enbridge is trying to evolve with the world around it to remain a major energy provider, whatever form it takes. This should please the ears of long-term investors looking for high-yielding stocks. The only caveat is that the yield here will likely account for the lion’s share of your yield. But if you’re trying to maximize the income your portfolio generates, this probably won’t be a problem for you.
TotalEnergies launches into a new space
If you want more direct exposure to the ups and downs of oil prices, which are currently on the rise, you may want to consider TotalEnergies. Since it produces oil and natural gas, it will benefit from rising energy prices (it will also be hit hard by falling prices). But it is an integrated energy major, meaning it has a globally diversified business that spans upstream (production), midstream (pipelines), and downstream (chemicals and refining). ). This diversification helps smooth out the ups and downs of the highly cyclical energy sector.
What sets TotalEnergies apart from its peers is that it has a strong commitment to investing in clean energy and electricity. These are increasingly important areas in the wider energy sector as the world moves in a greener direction. Thus, like Enbridge, TotalEnergies seeks to adapt with the times. And there is another important fact: when peers P.A. (NYSE:BP) And Shell (NYSE:SHEL) After announcing similar strategic changes at the turn of the decade, they cut their dividends. TotalEnergies supported its payment, stressing that it understood the importance of the dividend for shareholders.
The company’s clean energy and power businesses remain small, accounting for about 7% of the segment’s total net operating income. But TotalEnergies is moving responsibly by using cash flow from its carbon energy business both to build this investment and to pay its reliable 4.4% dividend yield. This is a good balance for those looking for long-term exposure to energy commodities and a hedge against the clean energy transition.
Two ways to achieve significant energy yields for years to come
Investing is always a balancing act between risk and reward. When it comes to the energy sector, the biggest long-term threat is the continued, albeit slow, move toward cleaner energy sources. But you can have the best of both worlds if you invest in Enbridge and TotalEnergies. Both companies generate reliable cash flow from their carbon-intensive operations, supporting their dividends and investments in the future, which increasingly include clean energy.
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Ruben Gregg Brewer holds positions in Enbridge and TotalEnergies. The Motley Fool holds positions and recommends BP and Enbridge. The Mad Motley has a disclosure policy.
Want decades of passive income? 2 Energy Stocks to Buy Now and Hold Forever was originally published by The Motley Fool
