Energy stocks can offer big dividends that are too attractive to ignore. However, investors need to look into each stock carefully, as not all energy stocks are made equal. Observing their long-term stock price charts will give a good big picture.
We’ll discuss three high-yield oil and gas producers followed by safer energy stocks for big dividends.
Can You Trust Big Dividends from Oil and Gas Producers?
TORC Oil and Gas (TSX:TOG), Surge Energy (TSX:SGY), and Vermilion Energy (TSX:VET)(NYSE:VET) offer attractive dividend yields of 7-10%. However, their underlying commodities, which experience volatile prices, have a big impact on the companies’ profitability.
The long-term stock price charts of the oil and gas producers illustrate how volatile the stocks can be. Although difficult to time the market, it still makes sense to aim to buy low and sell high, irrespective of what yields they offer.
For example, I once thought getting an above-average yield of 6% from Vermilion was awesome. But Vermilion now yields close to 9.5% — largely due to its stock price decline. So, instead of aiming to get a nice yield on oil and gas producers, I probably would have gotten a better outcome by aiming to buy at a low price; a high yield would just be a nice side effect.
TOG data by YCharts
SGY data by YCharts
VET data by YCharts
Generally speaking, oil and gas producers, which have increased their dividends in the last 12 months, offer safer dividends than ones that haven’t.
TORC last increased its monthly dividend by 13.6% in May 2019, Surge last increased its monthly dividend by 5.25% in June 2018, while Vermilion has kept its dividend the same over the last 12 months. Since, TORC most recently raised its dividend, its dividend is likely safer than the rest.
That said, we should also give some credit to Vermilion for having maintained or increased its dividend every year since 2003. It is the only oil and gas producer as far as I know that has achieved that. However, as shown, that doesn’t prevent its stock price from being volatile.
The investor takeaway is: Aim to buy low and sell high for price appreciation in oil and gas producers and view getting the big dividends in between as a bonus.
For much safer dividends, consider getting big dividends from energy infrastructure companies.
Big Dividends from Energy Infrastructure Stocks Are Safer
Energy infrastructure companies like Enbridge (TSX:ENB)(NYSE:ENB) and TC Energy (TSX:TRP)(NYSE:TRP), formerly known as TransCanada, have much stronger dividend track records. Specifically, the two have increased their dividend per share for 23 and 18 consecutive years, respectively. And they have paid a dividend for even longer than that.
The stocks also offer lower volatility and have better long-term trends than the oil and gas producers, naturally because Enbridge and TransCanada’s cash flows are much more stable and tend to rise over time. Safe dividends are paid from healthy cash flows.
ENB data by YCharts
TRP data by YCharts
Currently, the stocks of Enbridge and TC Energy offer yields of 5.8% and 4.5%, respectively.
If you’re a conservative investor, consider buying Enbridge or TC Energy on meaningful corrections. Their dividends are safer compared to oil and gas producers. However, oil and gas producers like TORC Oil & Gas, Surge Energy, and Vermilion Energy can deliver strong upside potential if you time the trades correctly.
If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.Disclosure: As of writing, we’re long on the TSX: TOG, VET, and ENB.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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