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2 interesting energy companies with ultra high dividend

Mart Poom
12. 6. 2023
5 min read

The energy sector is known for its high dividends. Some companies even boast a dividend that falls into the "ultra" category. However, not everything is so rosy and some of the risks that this sector poses must also be taken into account.

The oil and energy sector faces a number of specific risks arising from the nature of its business and its dependence on volatile global energy supplies. One of the most significant challenges is the high level of political and regulatory risk, as oil and energy prices are heavily influenced by government policies, taxes and quotas.

Oil and energy companies also face significant geopolitical risk, as part of the world's energy supplies are located in volatile or geopolitically sensitive regions where conflicts can erupt and disrupt supplies.

Oil is typically found in relatively unstable areas.

Another significant risk is the high volatility of oil and energy prices, which requires sophisticated management systems and hedging against price fluctuations. Assets in the oil sector have a long lifetime and it is therefore crucial that companies follow long-term technological trends and innovations in order not to lose competitiveness. Finally, the oil and energy sector is facing significant environmental pressures as it seeks to reduce greenhouse gas emissions and transition to more sustainable energy sources.

Investors in this sector should be aware of all these issues. If they are, and are willing to take the risk, then they are in for a rather nice dose of dividends and potential capital appreciation.

Energy Transfer LP $ET+0.0%

Energy Transfer LP is an energy company based in Dallas, Texas, USA. It specializes in the transportation and storage of crude oil, natural gas, and natural gas liquids.

The company owns and operates an extensive network of energy infrastructure in North America, including more than 90,000 miles of pipelines and crude oil pipelines, natural gas liquefaction terminals, storage facilities and other infrastructure.

ET
$14.86 $0.22 +1.50%
1 Day
+1.5%
5 Days
+0.92%
1 Month
+6.07%
6 Months
+4.53%
1 Year
+19.66%
YTD
+18.12%
5 Years
-20.94%
Max.
+137.56%

The Company's principal activities include the transportation of oil and natural gas throughout North America, the storage of liquids at natural gas liquefaction terminals, and the production and processing of oil and natural gas, with a focus on unconventional resources such as shale gas and oil plays.

The upside for ET is that it may get a rating upgrade. Ultimately, a credit rating upgrade could contribute to ET's future outperformance in several ways:

- It would signal to the market that ET is an even more reliable investment, which would strengthen the case for a higher valuation multiple - (meaning relative to its competitors)

- It would likely save them interest costs by allowing them to raise and refinance debt at more attractive rates than today.

- Meeting this goal would also free them from focusing on aggressive debt repayment. Instead, they could use this free cash flow to buy back shares, buy back preferred interests and/or invest in growth projects/mergers and acquisitions, all of which would generate more favorable returns on distributed cash flow than debt repayment. This would likely accelerate their DCF per unit growth, leading to further share outperformance.

DCF per unit stands for DistributableCash Flow per unit . It is the net cash flow after deducting investments and changes in working capital that is available to pay dividends or repay debt to a unit of stock or units.

Enbridge $ENB+0.0%

Enbridge Inc. is a Canadian energy infrastructure company headquartered in Calgary. It is engaged in the transmission, distribution and production of energy, including oil, natural gas and renewable energy.

ENB

Enbridge

ENB
$34.79 $0.35 +1.02%
1 Day
+1.02%
5 Days
-5.65%
1 Month
-7.46%
6 Months
-13.11%
1 Year
-19.12%
YTD
-14.67%
5 Years
-2.1%
Max.
+1,894.31%

Enbridge owns and operates an extensive network of oil and gas pipelines and infrastructure facilities in North America. Its transmission system includes over 39,000 km of oil, gas and underground pipelines in Canada and the United States, making it the largest operator of oil and gas pipelines in North America. Its principal activities include:

Energy Transportation - Operates high-capacity transportation systems to transport crude oil, natural gas and liquid hydrocarbons. The primary source of revenue is transportation charges.

Energy Distribution - Owns and operates a distribution network comprising approximately 2 million natural gas customer locations in Ontario and Québec.

Energy Generation - Through its subsidiaries, produces wind, solar, hydroelectric and biomass electricity. Focuses on growth in renewable energy.

Enbridge is characterized by stable revenues from long-term contracts, strong profitability and a relatively high dividend payout. Currently, its payout yields less than 7%.

Earlier this year, Enbridge set adjusted EBITDA guidance of $15.9 billion to $16.5 billion for 2023, and that outlook was confirmed when the company released its first quarter results.

The price has fallen to a pretty deep low. This decline seems to create an attractive buying opportunity for dividend investors looking to buy a dividend aristocrat at a decent price. Enbridge has been raising its dividend for 28 years and has achieved 5% dividend growth since 2019.

Dividend growth is really nice

Disclaimer: This is in no way an investment recommendation. It is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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