One of the advantages of investing in energy-producing companies is that they often yield dividends, unlike the underlying commodities they produce, such as oil and natural gas.
As the world transitions away from fossil fuels but is likely to remain dependent on them for decades to come, energy investments that pay dividends include oil and gas producers, infrastructure companies and utilities.
“The fossil fuel sector is the enduring oak, deeply rooted in global energy demands, while the renewable energy sector is the sprouting sapling, growing stronger every day,” says David Materazzi, CEO of Galileo FX, an automated trading platform. “Balancing investments in both sectors ensures that you enjoy the shade of stability today and the fruits of growth tomorrow.”
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In recent years, domestic oil and natural gas companies at the behest of investors have been prioritizing spending money on dividends, share buybacks and debt repayment over drilling for more oil and gas.
“U.S. energy companies generate cash from operating essential assets and have become much more disciplined with the allocation of cash,” says Rob Thummel, senior portfolio manager with Tortoise, an energy investment firm. “In general, energy companies have reduced capital spending, which leaves more cash to be allocated to shareholders in the form of higher cash dividends and stock buybacks.”
With stocks in the S&P 500 yielding less than 1.3% and expectations that the Federal Reserve will embark on a rate-cutting cycle, investors might want to boost holdings in stocks with decent yields.
Here’s a look at seven strong energy companies that also pay dividends:
| Energy Stock | Forward Dividend Yield* |
Consecutive Years Raised* |
| Energy Transfer LP (ticker: ET) | 8.0% | 3 |
| MPLX LP (MPLX) | 7.9% | 10 |
| Williams Cos. Inc. (WMB) | 4.2% | 8 |
| Exxon Mobil Corp. (XOM) | 3.2% | 41 |
| Southern Co. (SO) | 3.3% | 24 |
| Duke Energy Corp. (DUK) | 3.7% | 20 |
| NextEra Energy Inc. (NEE) | 2.6% | 30 |
*As of Aug. 27. Sources: Dividend.com, Yahoo Finance.
Energy Transfer LP (ET)
Natural gas can provide stable baseload electricity when renewables like wind and solar can’t generate it. Although natural gas is still responsible for a big chunk of global carbon emissions, it burns cleaner than coal and is expected to be the main bridge fuel during the energy transition.
“Natural gas has played an important role keeping global energy costs low as well as contributing to global decarbonization,” Thummel says. “Natural gas will have an expanded role in the future as the primary fuel source that generates the electricity to power the growing AI boom.”
Energy Transfer is a pipeline company that focuses on transporting, storing and terminaling natural gas, natural gas liquids, liquid natural gas, crude oil and refined products.
“ET operates essential energy infrastructure assets,” Thummel says. “The company generates a significant amount of cash and distributes this cash to unitholders in the form of high cash distributions.”
The company has increased its dividend for three consecutive years, and its stock yields nearly 8%, well above the 4.2% average yield of the energy sector.
MPLX LP (MPLX)
“Not all energy company cash flows are created equal,” says Thummel. “Oil and gas producers tend to have cash flows that are linked to commodity prices, whereas energy infrastructure companies generally have less commodity price sensitivity in generating cash.”
This master limited partnership was formed by Marathon Petroleum Corp. (MPC) to own, operate, develop and acquire midstream energy infrastructure assets.
“It operates some really critical crude oil and refined product pipeline assets as well as energy infrastructure in the Marcellus Shale needed to transport low-cost natural gas,” Thummel says. “Like ET, MPLX pays investors a high cash yield relative to other stocks.”
The company has increased its dividend for 10 consecutive years, and its stock yields 7.9%.
Williams Cos. Inc. (WMB)
“Energy is essential for modern civilization and global economic growth,” Thummel says. “Energy infrastructure is the essential of the essential. Without energy infrastructure, essential services would grind to a halt, and economic activity would come to a standstill.”
Here’s another energy infrastructure company to consider. As an operator of natural gas pipelines in the U.S., Williams seems well positioned to take advantage of the continuing demand for the bridge fuel.
“WMB owns and operates some of the most essential natural gas pipelines in the U.S.,” Thummel says. “Williams possesses a large economic moat, as its assets are extremely difficult to replicate.”
The company has increased its dividend for eight consecutive years, and its stock yields 4.2%.
Exxon Mobil Corp. (XOM)
There’s something to be said for stability and longevity.
“If you want Dividend Aristocrats — companies that have raised their dividends for 25 years or more — go with Exxon or Chevron Corp. (CVX),” says Sean Brodrick, analyst with Weiss Ratings. “Both are excellent stocks with solid dividends.”
For Stephen Akin, registered investment advisor with Akin Investments, Exxon is a favorite dividend-paying energy company.
With the recent merger with Pioneer Natural Resources Co. and access to the Permian Basin, “Exxon expects to earn double-digit returns by recovering more resources more efficiently and with a lower environmental impact,” Akin says.
The company’s move to consolidate its crude, natural gas, power and petroleum-product trading desks “is something that I believe will improve the efficiency of the company,” Akin says.
Exxon has increased its dividend for 41 consecutive years, and its stock yields 3.2%.
Southern Co. (SO)
Utilities are often considered defensive stocks because homes and businesses need electricity no matter what the economy is doing. These stocks aren’t likely to outshine growth equities when the economy is doing well, but investors will be glad to have them in a downturn.
That dynamic is changing, however, as electricity demand rises amid the energy transition and AI boom.
“It used to be that utilities would rally because investors feared a recession and looked to these companies and their nice dividends as a place to hide,” Brodrick says. “That’s transforming thanks to changing U.S. power demand. That should be good news for Southern Co.”
Southern owns electric utilities and natural gas distribution companies and includes solar, wind, hydro, coal and nuclear in its generation mix, in addition to natural gas.
The company’s share price has increased about 27% over the past year as of Aug. 26 and is near its record just shy of $90 hit earlier this year.
“I know it can be difficult to buy something trading so near to all-time highs, but Southern is probably going higher,” says Brodrick, whose six-month price target is $106 per share. Shares closed Aug. 26 at $86.49.
The company has increased its dividend for 24 consecutive years, and its stock yields 3.3%.
Duke Energy Corp. (DUK)
Here’s another utility investors might want to consider. Duke is the second-biggest nuclear reactor operator by capacity in the U.S., and that bodes well for the company as nuclear power is experiencing a renaissance.
After being shunned globally following a nuclear reactor disaster in Japan, the technology is attracting governments interested in a reliable source of electricity that doesn’t emit carbon dioxide.
The company’s energy generation mix also includes natural gas, coal, hydro and solar. Duke Energy is an established utility company known for consistently paying dividends, and its regulated utility operations generate a steady flow of income using an increasing amount of renewable energy. Because of this, Duke’s payouts may be more attractive than those of more erratic energy businesses.
The company has increased its dividend for 20 consecutive years, and its stock yields 3.7%.
NextEra Energy Inc. (NEE)
This renewables powerhouse is a leader in solar and wind electricity generation. The company is also involved with green hydrogen, battery storage and nuclear. Natural gas is also a large component of its generation mix.
“NextEra Energy stands out as a top pick among energy companies that pay dividends,” says Eric Croak, president and certified financial planner with Croak Capital. “They’ve been fairly unshaken by economic pressures like supply chain issues, inflation and rising interest rates, and they’re planning to double their renewable energy portfolio in the next few years.”
The company has increased its dividend for 30 consecutive years, and its stock yields 2.6%.
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Update 08/27/24: This story was previously published at an earlier date and has been updated with new information.
