There's something big happening in the energy sector. It isn't happening quickly, but it is happening and if you think long-term you'll probably want to start preparing now. With that in mind, here's why TotalEnergies (TTE 0.23%) and Enbridge (ENB 0.23%) could be two of the smartest high-yield energy stocks to buy right now if you have $500, $5,000, $50,000, or more.
What's going on with energy?
The fact that cleaner energy sources are displacing dirtier ones probably isn't going to come as a surprise to anyone. But the current transition is taking shape slowly, as most energy transitions in the past did, too. On the one hand that suggests that there's no need to rush into clean energy stocks. Oil companies, for example, are likely to see strong demand for decades into the future. But the slow pace of change is no reason to ignore the transition taking shape, either.
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Simply put, demand for clean energy is growing rapidly. Sure, that's from a relatively small base, but this is likely to be a multi-decade uptrend. That will remain true even as demand for fuels like oil and natural gas stay fairly robust. The obvious way to play a change like this is to go all-in with a stock like Brookfield Renewable (BEP -2.00%) (BEPC -1.61%). This investment option owns a globally diversified portfolio of clean energy businesses, including hydroelectric, solar, wind, storage, and nuclear. And it offers a hefty yield of up to 6.3%, depending on the class of shares you buy.
But there's another way that lets you cut the middle, if you will. With TotalEnergies and Enbridge you can benefit from the cash flows generated by oil and natural gas while the companies slowly change their businesses along with the rest of the world.
TotalEnergies is increasingly electric
TotalEnergies is offering a dividend yield of 5.8%. (U.S. investors will have to pay foreign taxes on the dividends they collect, but can claim back a portion come April 15.) The French company is one of the world's largest integrated energy majors, which means that its energy business includes upstream (production), midstream (pipeline), and downstream (refining and chemicals) assets. But in 2020 the company announced a fairly large strategy shift.
TotalEnergies had been dabbling in clean energy for years, but along with BP (BP -0.40%) and Shell (SHEL 0.09%), it openly stated it was going to start investing more heavily in the clean energy transition. Unlike those European peers, however, TotalEnergies didn't use the announcement as an excuse to cut its dividend. And, unlike those peers, TotalEnergies hasn't walked back the commitment it made. The company's integrated power business, where it houses electric and clean energy assets, made up roughly 10% of adjusted net operating income through the first nine months of 2024.
To be fair, that figure will likely bounce around a fair bit given the volatility in the company's oil and natural gas businesses. But adjusted net operating income was up 20% year over year in the integrated power division, showing that TotalEnergies is serious about this effort. If you want to invest in the old energy world but hedge your bets about the transition to a new energy world order, TotalEnergies is likely the smartest integrated energy major you can buy right now.
Enbridge is "bridging" the gap
Enbridge and its 6.1% dividend yield will likely be a little less exciting than TotalEnergies. That's because Enbridge is a North American midstream giant, owning assets like pipelines that help to move oil and natural gas around the world. This is a toll-taker business that generates reliable fee income. The best proof of that is the three decades worth of annual dividend increases (in Canadian dollars) that Enbridge has given to shareholders.
But there's big changes taking shape within Enbridge's portfolio. For example, the recent acquisition of three regulated natural gas utilities increased the company's exposure to cleaner burning natural gas from 40% of earnings before interest, taxes, depreciation, and amortization (EBITDA) to 47%. Dirtier burning Oil went the other way, going from 57% to 50%. And there's roughly 3% of EBITDA that comes directly from clean energy investments, which the company can grow over time, too.
Basically, like TotalEnergies, Enbridge is using the cash flows from dirtier energy sources to slowly transition toward cleaner ones, just like the rest of the world. If you like the idea of owning a boring fee-based business with a high yield and a plan to shift toward cleaner energy sources, this could be the investment for you.
Not the only way to play, but a smart one just the same
As noted above, there are other ways to invest in the clean energy transition. But if you aren't ready to jump in with both feet, TotalEnergies and Enbridge could be the solution you've been searching for. And since both offer lofty dividend yields, income investors don't have to give up yield to hedge their energy bets.
