If you are looking for boring income stocks that you can comfortably hold for a decade or more, you have your work cut out for you in the energy patch. The sector is known for being volatile.
But don't despair -- there are at least two very attractive choices to consider. Here's why, despite the energy sector's inherent volatility, conservative dividend investors will love high-yield Enterprise Products Partners (EPD -7.86%) and Enbridge (ENB -4.43%).
Helping to move things around
From a high-level view of the energy sector, raw oil and natural gas are pulled from the ground and then moved to another location, where they can be processed into useful products. Upstream companies pull these energy sources from the ground, and downstream companies turn them into useful products.
Both of these segments of the energy sector are commodity driven. While the upstream has to deal with just oil and natural gas price volatility, the downstream actually has to deal with that plus the fact that many of the products it produces are commodities, too. The odd man out on the commodity front is the midstream.
Image source: Getty Images.
Midstream companies own things like pipelines, storage, transportation, and processing assets. These are vital parts of energy infrastructure that help to move oil and natural gas, and the products into which they get turned, around the world.
However, unlike the upstream and downstream segments, midstream companies largely charge fees for the use of their physical assets. That means that demand for energy is more important than the price of energy. Demand for energy tends to remain high even when oil prices are low. Thus, midstream companies usually have very consistent cash flows.
If you are a buy-and-hold dividend investor looking at the energy sector, the midstream is a great place to start your search.
Enterprise and Enbridge lead the list
The first thing that dividend investors will like about Enterprise Products Partners and Enbridge are their lofty yields. Enterprise, a master limited partnership (MLP), has a distribution yield of 6.3%. Enbridge's dividend yield is 6%. For comparison, the S&P 500 (^GSPC -5.97%) is yielding a scant 1.2%, and the average energy stock is yielding 3.3%. If you are trying to find ultra-high yields, these two midstream players have you covered.
NYSE: EPD
Key Data Points
But there's more to like on this front. Enterprise has increased its distribution annually for 26 consecutive years. Enbridge has increased its dividend (in Canadian dollars) for 30 years. That's the kind of consistency that can help a dividend investor sleep well at night, decade after decade.
NYSE: ENB
Key Data Points
Enterprise and Enbridge are industry giants. Both have high quality asset portfolios. Both are financially strong. You could pick either one and be pretty confident that the income checks will keep rolling in.
The major difference is that Enterprise is more focused on oil and natural gas infrastructure. Enbridge's portfolio includes natural gas utilities and clean energy investments, which might attract investors who are looking to hedge their energy bets against the clean energy transition. But at the same time, it might turn off investors who are looking for more of a pure play.
Either one is a good call
Buy one; buy the other; buy both! There's really no bad call here if you are looking to create a lofty and reliable income stream. Enterprise and Enbridge are two of the most reliable dividend-paying energy companies you can buy. Boring, too, but that's part of the attraction for investors who are looking to buy and hold for decades at a time.
