Investors often look to metrics like P/E to assess valuation, which is perfectly fine. But dividend yield can also be used in this way. In fact, given the variability of earnings and the relative consistency of dividend payments, you could argue that yield is a better measure of investor sentiment. That’s why high-yield Enterprise Products Partners (NYSE: EPD) and TotalEnergies (NYSE: TTE) look like cheap energy stocks you might want to buy today.
Enterprise’s yield is historically high
Enterprise’s 7.6% distribution yield is at the high end of its historical yield range. That suggests the master limited partnership (MLP) is relatively cheap today. Of course this alone doesn’t make it worth buying.
The good news is that backing the high yield is a distribution that has been increased for 25 consecutive years. The MLP’s balance sheet is also investment grade-rated. And distributable cash flow covered the distribution 1.7 times over in 2023. In other words, the high yield appears well supported.
Enterprise’s business, meanwhile, is built for consistency. It owns the energy infrastructure that’s used to transport oil, natural gas, and the products into which they get turned around the world. Customers pay fees for the use of the assets, so volatile commodity prices aren’t nearly as important as demand for energy. Energy demand tends to be resilient even when oil prices are low. The negative here is that the yield will probably make up the lion’s share of the return investors see because business growth is likely to be modest. However, if you’re looking to maximize the income your portfolio generates, Enterprise should definitely be on your short list right now.
TotalEnergies’ yield is relatively high
Integrated energy giant TotalEnergies’ closest peers are ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), BP (NYSE: BP), and Shell (NYSE: SHEL). Of this group, it has the highest dividend yield at roughly 5%. That hints that investors are discounting the stock relative to its peers.
What’s interesting here is that TotalEnergies is offering a combination of things that none of its peers has. U.S. giants Exxon and Chevron are largely sticking to their oil and natural gas focus. TotalEnergies is investing in its carbon fuels business, but it’s also building a clean-energy business. Thus, it is adjusting with the world around it. While BP and Shell are investing in clean energy, too, both of these European peers cut their dividends at around the same time they announced clean-energy shifts. TotalEnergies hasn’t needed to cut its dividend and, in fact, has continued to increase it.
In all, if you’re looking for a diversified, high-yield energy stock, TotalEnergies could be just what you desire. That said, U.S. investors will have to pay foreign taxes on TotalEnergies’ dividend. But those taxes can be claimed back when filing U.S. taxes. This is extra work, but it could be well worth the effort for investors attracted by TotalEnergies’ more measured approach to the energy sector.
Two high yields worth a deep dive
Neither Enterprise nor TotalEnergies is perfect, but then no stock is. If you’re looking to maximize the income your portfolio generates, then ultra-high-yield Enterprise is worth a deep dive. If you’re simply looking to add some diversified energy exposure to your portfolio with an integrated energy company, then the relatively high yield TotalEnergies offers over its peers should be attractive to you.
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Reuben Gregg Brewer has positions in TotalEnergies. The Motley Fool has positions in and recommends BP and Chevron. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
2 Incredibly Cheap Energy Stocks to Buy Now was originally published by The Motley Fool