The Best Dividends in Energy


Stable dividends can be an investor's best friend and the energy sector is one of the most stable for supplying those dividends. Energy usage on all levels varies very little from year to year and regulated markets can provide very stable businesses for investors. With that in mind, I've assembled a list of five companies that supply great dividends that I think will be stable in the long term.

Oil drilling can be a very volatile business. A better than expected well can send your stock through the roof and a dry well can send your stock crashing down. But supplying equipment to a growing market can be extremely stable and lucrative.

Right now, one of the best equipment businesses in offshore drilling, and even more specifically ultra-deepwater offshore drilling, is Seadrill. The company owns a large fleet of deepwater rigs and has 22 more rigs under construction, seven of which are ultra-deepwater drillships. This will be a stable business because of the overall trends in the oil market.

Oil is harder and harder to find both onshore and offshore, so drillers are going to greater lengths to find it. That's led companies to oil fields in water up to two miles deep off the coasts of the U.S., Brazil, Africa, and other parts of the world. As more drilling takes place, more oil is found, creating a reinforcing loop for ultra-deepwater rig owners.

For shareholders, Seadrill trades at just 10 times this year's earnings estimates, and with new rigs coming online over the next few years, profits should continue to grow. The stock's 9% dividend yield is among the highest on the market, but I think it's safe in this growing energy market.

Kinder Morgan
Another play on the energy market that's safer than betting on explorers is with the companies transporting oil and gas from place to place. Kinder Morgan owns oil and gas pipelines, processing stations, terminals, and other energy assets. The company makes money by moving oil and gas from processing sites to refiners, in many cases in regulated markets, providing stable returns. As shale production in the U.S. increases there will be expanded opportunities for Kinder Morgan to grow and diversify its assets.

The stock pays a 4% dividend yield; with the stability of the oil and gas markets investors can count on payouts for a long time to come. Another way to play this company is with Kinder Morgan Energy Partners , which pays a 6% dividend yield. The difference is, Kinder Morgan Partners is an MLP so it has different tax consequences than its parent Kinder Morgan, something you can learn more about here.

In the oil production space, Total is one of the biggest players and it is well-positioned for a changing energy landscape in the future. The company is one of the largest players in liquefied natural gas, supplying an increasing amount of the energy to Asia. It is also majority owner of solar leader SunPower, which gives it a foothold in an emerging part of renewable energy.

Total's stock trades at just 8.4 times trailing earnings and investors get a 5.4% dividend yield to go along with it.

Hawaiian Electric Industries
What would an energy dividend article be without at least one utility? For my utility pick I'm going halfway across the Pacific Ocean to the company supplying 95% of Hawaii's population with electricity, Hawaiian Electric Industries.

Below, you can see that even through the financial crisis the company made a profit for shareholders and has picked up returns recently:

HE Net Income TTM Chart
HE Net Income TTM Chart

HE Net Income TTM data by YCharts

To top it off, the company is a model in consistency, paying the same $0.31 quarterly dividend since 1998. That's still a 4.5% yield at today's stock price, not bad for a company with almost no competition and a very consistent history of payments to shareholders.

Utilities won't be the growth engines of a portfolio the way a company like Seadrill might be, but investors are getting consistency instead. That's why Hawaiian Electric is on my list of top dividends.

Foolish bottom line
To back up these picks I'm adding outperform calls on my CAPS portfolio, which you can track here.

For even more dividend picks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.

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Fool contributor Travis Hoium manages an account that owns shares of SunPower, Kinder Morgan, and Seadrill. Travis Hoium personally owns shares of SunPower and has the following options: Long Jan 2015 $7 Calls on SunPower, Long Jan 2015 $5 Calls on SunPower, and Long Jan 2015 $15 Calls on SunPower. The Motley Fool recommends Kinder Morgan, Seadrill, and Total SA. (ADR). The Motley Fool owns shares of Kinder Morgan and Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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