Time to Pounce: 2 Historically Cheap Ultra-High-Yield Energy Stocks That Are Begging to Be Bought Right Now

Core Insights - The article emphasizes the attractiveness of high-quality dividend stocks, particularly in the energy sector, which has an average yield of 9.87% [1][2] Group 1: Dividend Stocks Performance - Non-dividend paying companies generated an average annual return of 4.27% over the past 50 years and were 18% more volatile than the S&P 500 [2] - Dividend-paying stocks achieved an average annual return of 9.17%, more than double that of non-payers, while being 6% less volatile than the S&P 500 [2] Group 2: Energy Sector Overview - The energy sector includes oil and gas drilling, midstream, refining companies, and some coal and uranium producers [2] - Among nearly 200 energy stocks with a market cap of at least $300 million, 50 offer ultra-high-yield dividends, significantly higher than the S&P 500 yield [2] Group 3: Enterprise Products Partners - Enterprise Products Partners has a market-topping yield of 7.3% and has increased its base annual distribution for 25 consecutive years [4] - The company operates as a midstream energy provider, managing over 50,000 miles of transmission pipeline and storing over 300 million barrels of liquids [5] - Enterprise's fixed-fee contracts with upstream energy companies provide predictable cash flow, with a distribution coverage ratio (DCR) that never fell below 1.6 during the pandemic [6] Group 4: Growth Catalysts for Enterprise - Reduced capital spending by major energy companies during the pandemic has constrained global oil supply, likely leading to elevated crude oil prices [7] - Enterprise Products Partners is valued at approximately 7 times estimated cash flow for 2025, indicating it is relatively cheap [8] Group 5: Alliance Resource Partners - Alliance Resource Partners offers a 12.5% yield and has significantly grown its quarterly distribution post-pandemic [9] - The coal industry has seen a resurgence in demand and high per-ton sale prices due to reduced capital expenditures by global energy companies [10] - The company has managed to keep debt-servicing costs manageable, closing the March quarter with $297.1 million in net debt and generating nearly $210 million in net cash from operations [11] Group 6: Predictable Cash Flow and Diversification - Alliance Resource Partners generates predictable cash flow by pricing and committing production up to four years in advance, with significant amounts already priced for 2024 [12] - The company has diversified its operations by acquiring oil and gas royalty interests, which can enhance earnings as crude oil or natural gas prices rise [12] - The valuation of Alliance Resource Partners is attractive, with a forward-year earnings multiple of 6 [13]