With crude oil prices rising above $70 per barrel, the energy sector is once again attracting investors. On the other hand, some are wondering if energy stocks are still attractive after their significant rise this year. While rising oil prices can support stock prices, basing investment decisions on volatile oil prices could be a risky strategy. Instead, here are three stocks that are set to flourish when oil prices are high, but at the same time, are resilient when prices fall.
Enbridge
Enbridge (ENB 0.87%) is a leading pipeline company with operations in the U.S. and Canada. It is involved in the transportation, storage, and related services for oil, gas, and liquids. Its huge and diversified asset infrastructure provides it with relative earnings stability. Enbridge's contracts are largely fee-based, and so its earnings are not directly impacted by short-term commodity price fluctuations.
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In addition to diversified assets, Enbridge's key strength is the strategic location of its pipelines. The company's liquids pipelines connect Canada's oil sands to refineries across the Gulf Coast. These refineries are designed to process heavy Canadian oil and changing to other grades may not be always efficient for them. Moreover, rates on Enbridge's pipelines are competitive compared to other options. Thus, its pipeline capacity is usually in high demand.
With 26 straight years of dividend growth, Enbridge is an attractive stock for dividend investors. At its current price, the stock offers a yield of nearly 6.5%. Enbridge expects to grow its cash flow by 5% to 7% through 2023. Around CA$10 billion of capital projects that the company expects to place into service in 2021 should support its expected cash flow as well as dividend growth in the coming years.
Valero Energy
Top independent refiner Valero Energy (VLO 0.97%) is well-placed to benefit from a recovery in the demand for refined products. Vaccine rollout, a drop in new COVID-19 cases in the U.S., and summer driving season should all uplift gasoline demand. Even though there are some concerns as the kick-off of the driving season hasn't uplifted demand as much as expected, that could change in the coming weeks. Moreover, economic recovery should result in a broad-based recovery in the demand for gasoline.
In addition to the expected demand growth, capital discipline is a key strength of Valero. The refiner's debt-to-capital ratio has historically been conservative compared to its peers.
VLO Debt To Capital (Quarterly) data by YCharts
Also, Valero Energy targets a net debt-to-capital ratio of 20% to 30% in the long run. Valero targets to pay 40% to 50% of its adjusted net cash from operating activities to shareholders through a combination of dividends and share buybacks.
In addition to strong refining operations, Valero Energy's activities in the renewable diesel segment helps diversify its earnings while placing it well for a transition to cleaner energy sources. The company plans to expand its renewable diesel production capacity from 290 million gallons per year right now to 1.2 billion gallons per year by 2023. The refiner's capacity expansion decision is based on attractive returns on invested capital from this business.
With a dividend yield of 4.8%, Valero Energy offers an attractive way to gain exposure to the refining segment of the energy sector.
Chevron
Volatile oil prices, lower oil and gas demand due to the pandemic, and ongoing transition to renewable energy sources have kept a lid on the prices of energy stocks in recent years. Strengthening oil prices have uplifted the sector's stock this year, but prices remain low, and yields higher, than historical levels. Top stock Chevron (CVX 0.47%) is offering attractive yield, despite the recent gains in its stock price.
CVX Dividend Yield data by YCharts
Chevron's diversified operations -- right from oil and gas exploration and production to their transport, refining, and distribution -- helps it a bit compared to pure-play producers. Secondly, the company's balance sheet strength and its capital discipline help it to better navigate challenging times such as the last year. The company's debt-to-capital ratio of 25% is lowest among its top peers. This also makes Chevron's dividend reliable compared to its more leveraged peers.
Chevron is a dividend aristocrat with 34 consecutive years of dividend growth. An attractive yield, financial strength, diversified business, and commitment to dividend makes it an appealing stock for dividend investors looking for energy-sector exposure.
