Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
One of the key advantages of high-yield energy stocks is their ability to diversify an investment portfolio. However, their biggest disadvantage lies in their often high volatility, caused by sensitivity to commodity prices. The good news is that this issue can be mitigated by choosing the right stocks. For example, by focusing on midstream energy companies and utility firms, investors can enjoy stable and long-term dividend incomes while avoiding the risks associated with oil and natural gas price fluctuations.
Two such high-yield energy stocks are Enbridge (ENB) from Canada and Black Hills Corporation (BKH) from the United States. Enbridge offers an impressive dividend yield of 6.1%, with a remarkable 29-year streak of increasing dividends, while Black Hills, a dividend king, boasts a 4.1% yield with 54 consecutive years of dividend increases.
Enbridge is a Canadian midstream energy giant that owns and operates an extensive pipeline network, primarily transporting oil, natural gas, and other liquid fuels. Its pipeline system spans key energy production and consumption regions across North America, ensuring efficient energy delivery. Unlike upstream (exploration and production) or downstream (refining and chemicals) players in the oil and gas sector, Enbridge operates a different business model. It typically enters into long-term contracts with its clients, earning stable revenues through fixed fees for asset use or charges based on transported volumes.
This reliable business model ensures predictable cash flows, shielding Enbridge’s income from sharp oil and gas price fluctuations. The company’s consistent track record of raising dividends for 29 consecutive years (in Canadian dollars) is a testament to its stability.
Enbridge’s dividends also appear safe, supported by its strategic and hard-to-replace infrastructure assets such as pipelines and storage facilities. Beyond its traditional oil and gas transportation services, the company has diversified into natural gas utilities and renewable energy projects like wind and solar power. This diversification reduces dependence on any single market. Combined with its investment-grade balance sheet, there is little risk of dividend cuts in the foreseeable future.
In the first nine months of 2024, Enbridge’s distributable cash flow (DCF) payout ratio remained within the management’s target range of 60% to 70%.
If a 29-year streak of increasing dividends isn’t impressive enough, Black Hills sets itself apart with an extraordinary 54-year history of continuous dividend growth. This natural gas and electric utility company has earned its place in the elite group of “Dividend Kings” in the utility sector.
With a market capitalization of only $4.5 billion, Black Hills is much smaller than many utility giants. However, the company serves approximately 1.3 million customers in states such as Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Notably, these regions are experiencing population growth roughly three times faster than the U.S. average.
The utility sector is characterized by natural monopolies, with operations closely regulated by government agencies. Black Hills must comply with regulations for pricing and capital investment plans, ensuring steady operations. Population growth in its service areas translates into more customers, growing revenues, increased capital expenditure needs, and ultimately higher rates. Black Hills currently has a $4.3 billion capital investment plan through 2028, which is expected to support long-term earnings growth in the 4%-6% range.
With promising earnings growth, dividends are likely to grow in tandem, making Black Hills a solid choice for investors seeking a reliable and steadily growing income source.
Both Enbridge and Black Hills demonstrate how high-yield energy stocks can deliver financial stability and robust dividend payouts. While some energy stocks might offer even higher yields, the financial strength and long-term reliability of these two companies make them exceptional picks, particularly for a sector often associated with volatility. For income-focused investors, Enbridge’s and Black Hills’ dependable dividends represent an ideal combination of high yields and low risk.
