Earn Long-term Passive Income? Three High-profit Energy Stocks You Should Invest in Immediately
If there's one popular topic in the energy sector, it's the worldwide shift from polluting fossil fuels to cleaner options. While this transition is happening, it's progressing slower than supporters of clean energy would prefer. Yet, this situation creates a promising investment chance, even for individuals who favor high-yield dividend stocks and passive income.
The following three stocks - Enbridge (ENB 0.26%), TotalEnergies (TTE 0.73%), and Brookfield Renewable (BEP 0.39%) (BEPC) - are worth examining right now, given this booming interest, especially if you're aiming to create a long-term, passive income stream in the energy sector.
1. Enbridge targets an intriguing objective
Approximately half of Enbridge's earnings before interest, taxes, depreciation, and amortization (EBITDA) stems from oil pipelines, with another 25% coming from natural gas pipelines. As of early 2023, these two figures were 57% and 28%, owing to Enbridge's acquisition of natural gas utilities. The utility division grew from 12% of EBITDA to 22%, with its 3% exposure to renewable energy remaining about the same.
Enbridge aims to meet the world's energy demands as global energy needs evolve. Natural gas, a cleaner-burning fuel than coal or oil, is serving as a transitional fuel for the clean energy transition. Consequently, the firm is seeking to expand its natural gas exposure. However, don't overlook the 3% of EBITDA in the renewable energy sector. Management is also considering steps beyond natural gas, though it seems to believe it has ample time to develop this business given the likelihood of a prolonged energy transition.
Meanwhile, Enbridge boasts an investment-grade-rated balance sheet. It has increased its dividend, in Canadian dollars, annually for 30 consecutive years. And its distributable cash flow payout ratio falls within its 60% to 70% target payout range. The yield stands at an impressive 6.4%.
2. TotalEnergies is a bit riskier than Enbridge
Enbridge operates in the midstream segment of the broader Energy Sector. Midstream assets typically provide reliable cash flows due to their fee-driven nature. Some investors might prefer a slightly higher exposure to commodities, which is where TotalEnergies comes in. This French company is one of the world's leading integrated energy giants, with assets spanning from oil and natural gas production to the chemicals and refining sectors. Although having a diverse energy sector portfolio helps soften the industry's natural volatility, TotalEnergies still exposes investors to oil price fluctuations. Oil prices have been weak recently, causing the company's shares to decrease and its yield to rise to 5.9%.
What distinguishes TotalEnergies from its competitors is its aggressive push into the clean energy and electricity industries as it adjusts to the changing world. At present, its integrated power division (the division responsible for clean energy) accounted for about 10% of segment profits between January and September 2024. And it's making this transition without slashing its dividend, a move European peers BP and Shell made when they announced similar plans. ExxonMobil and Chevron haven't invested as heavily in the energy transition.
All things considered, if you believe the long-term future is green, TotalEnergies might be the integrated energy giant you should consider investing in.
3. Brookfield Renewable is fully committed to clean energy
Both Enbridge and TotalEnergies are helping bridge the gap between today's energy needs and tomorrow's needs. Brookfield Renewable, with its potential yield of up to 5.9%, is a high-yield investment to focus on clean energy. There seems to be a lengthy runway for growth ahead, which suggests that Brookfield Renewable could provide decades of passive income.
What makes this situation unique is that Brookfield Renewable operates under the auspices of Brookfield Asset Management (BAM 0.63%), a well-regarded Canadian asset manager with extensive experience in the global infrastructure sector. Essentially, Brookfield Renewable allows investors to invest alongside Brookfield Asset Management. While this is beneficial, it alters the equation somewhat because Brookfield Renewable is known for its aggressive asset portfolio management strategy. Typically, it acquires clean energy assets at attractive prices, focuses on improving their operations to increase value, and then sells them when it obtains a favorable sales price.
Although certain investments in the collection might never see a sale, it's essential to recognize that Brookfield Renewable operates more like a asset manager instead of an electrical utility. This reasoning also clarifies the existence of two distinct share classes, one being a partnership class and the other a corporate share class, both representing the same organization. However, the popularity of the corporate share class among larger investors (the primary reason for its development, as it expanded the possibility of drawing in a broader investor base for growth capital) has resulted in a comparatively lower yield of 4.7%. Nevertheless, if your focus lies in clean energy, Brookfield Renewable's internationally diverse portfolio and substantial yield should place it prominently among your options.
3 stocks for the investor who perceives the energy market evolving
Oil and natural gas are likely to remain crucial for several decades, allowing you to maintain loyalty to companies disregarding the clean energy shift and potentially staying unscathed. On the other hand, Brookfield Renewable serves as an excellent alternative for fully diving into the clean energy wave. The limited yet expanding clean energy involvement of Enbridge and TotalEnergies, alternatively, will function as strong picks for those favoring a more cautious approach, gradually dipping their toes before fully committing. In any case, these stocks will enable you to balance your energy investments while amassing substantial yields for a prolonged period.
- Given the shift towards cleaner energy options and the promising investment opportunities in the sector, investors may want to consider diversifying their portfolio by investing in stocks like Enbridge, which not only has a strong presence in traditional energy sources but is also actively expanding its natural gas exposure to meet the evolving global energy demands.
- Meanwhile, those with a higher risk tolerance might find TotalEnergies an attractive investment option. Although it operates in various energy sectors, including oil, TotalEnergies is investing heavily in clean energy and electricity industries, making it a potential long-term bet on the future of sustainable finance.
