Five Energy Dividend Stocks That’s Warming Up Investors’ Portfolios This Summer

Five Energy Dividend Stocks That’s Warming Up Investors’ Portfolios This Summer

Investors continue to leverage the utility sector as a short-term gains strategy, with oil and natural gas prices retreating from their peaks experienced throughout much of last year, and following the ongoing conflict between Ukraine and Russia. 

However, there’s still a lot of steam left in the engine for utility companies, even as a fresh round of interest rate hike talks begin to clamp down on investors and the broader U.S. market. 

Back in May this year, the Federal Open Market Committee (FOMC) made a prudent pause to its tightening monetary policy, after bumping up interest rates to a range of 5% to 5.25%, the highest it’s been in more than 15 years. 

Things have started to change again, and the Federal Reserve is once again taking a tough stance against sticky inflation, with FOMC Chair Jerome Powell reiterating the sounds of more interest rate hikes coming through the end of 2023. 

Talks of further monetary tightening have left investors looking to park their cash in recession-ready investment vehicles, many now dumping cash in U.S. bonds and treasuries. 

Despite the macroeconomic noise playing off in the background, utility companies, and the broader utility sector continues to see steady performance, even after having to navigate a series of tumultuous economic headwinds. 

The utility sector is ripe with opportunity

There’s a general consensus shared among institutional investors that once a recession hits our shores, consumers and businesses might reduce their spending on non-essential items - which many have already done - but continue paying for essential goods and services. 

Among the sectors that see improved growth and performance during a recession, utility companies tend to shine brightest. Other sectors such as healthcare, defensive stocks such as consumer staples, and low-cost retail typically see the same sort of trajectory. 

Against inflationary pressures, energy costs for consumers have risen the fastest, with year-over-year electricity inflation peaking at 15.8% in August 2022, according to the Bureau of Labor Statistics.

Prices for residential electricity are estimated to see a further increase this year. The Energy Information Administration said back in January this year that prices have already jumped 15.07 cents a kWh last year, up from 13.66 cents per kWh in 2021. By the end of this year, consumers could be looking at 15.45 cents a kWh. 

Higher price tariffs might be bad news for the consumer, but for utility companies, that are also now looking to leverage the opportunities of the Electric Vehicle (EV) industry revolution, a handful of energy dividend kings could soon capture widespread investor attention. 

Time to lighten up with these energy dividend stocks 

While utility stocks tend to be somewhat less exciting than tech and other growth stocks, they often provide investors with better leverage for short-term selling but also increase their capital gains through attractive dividend yields. 

Economic headwinds could see some companies winding down expansion into new regions of the market, these activities could help free up more cash that could later be directed into new projects for utility giants. 

Consol Energy Inc

Forecasting analysts are currently tied between Buy and Sell, even Hold with Consol Energy (NYSE: CEIX), as the American energy company recently saw its share prices target being slashed by analysts. 

These activities have left many in the dark on whether they should cut their ties with Consol Energy, or hold to short-sell in the near term. About five years ago the company divided itself into two separate entities - CNX Resources Corporation and Consol Energy. 

Since the split, the company has managed to increase its production and energy generation over the last several years, becoming one of the largest underground coal mining companies in the United States. 

CEIX share price performance has been an upside for some energy dividend investors, seeing a performance of 13.7% to date. In June 2023, the price pushed against the ceiling even further, with the needle moving upward of 21%. Given the company’s established track record, perhaps the 6.64% dividend yield investors can get from CEIX is worth their time and effort. 

MPLX LP

While there’s not necessarily a rally for MPL (NYSE: MPLX) at the current stage, analysts are advising investors to jump in before prices begin to soar again later this year. This is on the back of cheap stocks, but more so, the 9.11% dividend yield the stock has clocked in as of June 2023. 

There is still a lot of room for improvement and growth for the large-cap energy infrastructure and logistics assets provider. During its Q1 2023 results, the company reported a 5% increase in year-over-year distributable cash flow. Elsewhere, shareholders also had bigger gains, with distributed dividends of $0.75, slightly up from last year's reported quarter. 

Given the difficult conditions energy utility companies had to operate under in recent months, following soaring interest rates, tight supply chain constraints, and further environmental concerns, MPLX continues to showcase a sense of resilience despite these challenges. 

Looking at the stock market performance, there’s a sentiment that prices could swing further north in the later part of the year, with prices up 4.6% to date, and already jumping by 17.44% between June 2022 and June 2023. This could be a winning year for MPLX, however, this could be the affordable energy dividend bull investors could ride into the next rally. 

Valero Energy Corporation

There has been an upward movement of Valero Energy (NYSE: VLO) in recent weeks, and following the company’s forward-looking financial situation. 

Given its current trajectory, there has been a strong indication for investors to purchase and hold for long-term profit gains. Analysts are feeling increasingly bullish over, as the fuels production and refineries company has given improved financial performance in its most recent earnings results. 

There are currently two elements that are helping the company gain prominence on the stock market. For starters, during its most recent earnings results, the company reported reducing its debt by $199 million. 

Furthermore, it recently completed the Port Arthur Coker project in March, which started operating in April already. Both these key events give the company increased forward-looking free-flowing cash, either to invest in new projects or to return to shareholders. 

Roughly $1.8 billion has been returned to stockholders as of Q1 2023 results. A quarterly dividend for common stock was declared at $1.02, and as of June 2023, VLO dividend yield is hovering around 3.49%. 

On the stock market, VLO prices have fallen by just over 4% to date, but recent activity has already seen prices gain more than 4% since the start of June.

Coterra Energy Inc. 

Hydrocarbon exploration company Coterra Energy (NYSE: CTRA) is underperforming compared to other leading competitors, however, current share prices, combined with an 8.99% dividend yield are perhaps what’s winning over novice and professional investors looking for a cash-heavy investment opportunity. 

The oil and gas exploration company has had an interesting year, with utility prices fluctuating, and further commodity performance decreasing against the backdrop of rising interest rates and sticky inflation. 

However, Coterra has managed to navigate these challenges seamlessly and is considered to be one of the top dividend stocks in the S&P 500. While dividend payouts are slightly down $0.20 per share, compared to $0.57 per share in March 2023, the overall 12-month yield of 8.3% is still among the best in comparison to other utility dividend kings. 

Candlestick movement on the stock market has been somewhat across the board, with yearly CTRA prices zig-zagging between $22.25 - $32.47. Overall, performance remains steady, gaining 7% to date. There is potential upside in the long-term outlook, however, oil and gas price fluctuations could see performance on the stock market shift south. 

Clearway Energy 

For any investor interested in a utility company with a diversified portfolio of energy generation facilities, Clearway (NYSE: CWEN) is one of a handful of utility companies operating both wind and solar farms, and stakes in conventional energy sources. 

As of June 2023, Zack’s analysts have given CWEN a Strong Hold, as prices have been sinking southwards for the greater half of the last several weeks. However, this could play in favor of dividend-hungry investors that are looking for stocks that could present major upside in the long-term, but also still see substantial dividends during their holding period. 

With a dividend yield of 5.73%, it’s fairly safe to say that investors will have something to be excited about in the coming months, even if share prices continue to fluctuate. 

Perhaps the move to sustainable and renewable energy resources will also further entice investors, largely due to policymakers pushing for more progressive sustainability laws. However, the most recent quarterly results already indicated that environmental issues such as increased rainfall in places such as California have already made it difficult to meet solar energy targets. 

A series of environmental factors could further impact the fiscal annual performance of the company, which might drag investors to pull the plug on Clearway, and rather park their cash in other conventional utility companies. 

There’s an upside that comes with CEWN, however, investors need to keep a close eye on which direction the candlestick is moving, as this could give them an indication of whether they should hold or sell in the long term. 

Closing thoughts 

Utility companies have fared off the majority of the macroeconomic challenges that have come face-to-face in recent months. This, however doesn’t mean that they are out of the woods just yet. 

There’s still a lot of water that needs to flow into the ocean this year, and upcoming interest rate hikes could be another blow for utility providers. Perhaps a shining outlook for investors that are active utility traders is that during recessionary periods, these and other energy dividend stocks provide major upside for their portfolios.