Oil prices can fluctuate wildly. This has certainly been the case in recent years. Crude went from collapsing into negative territory in the early days of the pandemic to soaring into the triple digits after Russia invaded Ukraine.
This volatility can drive investors away from the oil field. However, some oil stocks can thrive amid all the volatility. Three great oil stocks to own for the long term are Enbridge (IN B 0.67% ), Magellan channel partners ( BPM 1.10% )and Enterprise Product Partners (EPD 0.19% ).
Sheltered from oil price volatility
Matt DiLallo (Enbridge): Enbridge operates the largest crude oil transportation system in the world. The Canadian pipeline company transports 30% of all oil produced in North America. Moreover, it works natural gas transmission, distribution and storage assets and has a renewable energy business.
Enbridge’s focus on operating energy infrastructure insulates it from oil price volatility. The company generates 98% of its revenue from cost-of-service contracts and stable fees, which provides it with predictable cash flows in all market cycles.
The company also has a long history of steady growth. Enbridge currently expects to grow its cash flow per share at an annual rate of 5% to 7% through at least 2024. It has a strong backlog of expansion projects to fuel growth, including new oil and gas pipeline expansions and renewable energy projects. Enbridge has significant financial flexibility to fund these investments due to its strong balance sheet and reasonable dividend payout ratio.
This combination of a solid financial profile and steadily increasing cash flow should allow Enbridge to continue to grow its dividend by 5.8%. The pipeline company has increased its payments for 27 consecutive years.
Enbridge’s attractive dividend and visible growth prospects should help it continue to build shareholder value over the next few years. This makes it an excellent oil stock to hold in the midst of a period that will likely continue to be volatile for oil prices.
Diversification of its core
Reuben Gregg Brewer (Magellan Midstream Partners): There’s more than one way to skin a cat, as the old saying goes. Or in the case of Magellan Midstream Partners, investing in oil. About 30% of the MLP’s operating margin comes from transportation of oil, with the rest from refined products, which are essentially the things that oil is transformed into (such as gasoline and jet fuel, among others). But the real key here is that the vast majority of its revenue is tied to the use of its assets, not the price of oil. So demand is the big issue, not commodity prices.
Meanwhile, investors are getting a whopping 8.2% payout yield. That distribution, meanwhile, has grown every year since Magellan’s IPO in 2001. It’s a streak spanning more than two decades, including during the 2020 pandemic, when oil prices dropped because fuel demand was relatively low. In other words, Magellan took this hit in relative stride.
Much of the strength of the MLP comes from its record. Magellan’s debt-to-earnings before interest, tax, depreciation and amortization (EBITDA) ratio is approximately 3.6 times. This is towards the bottom of the median peer group, which is exactly where Magellan still finds itself. This conservative budgetary position allows the management to breathe in difficult times. And that should entice even the most risk-averse investors to jump on board this intermediate oil-related name.
This 7% Yield Stock Will Not Disappoint
Neha Chamaria (Enterprise Product Partners): Two factors make Enterprise Products Partners the type of stock that any oil and gas investor would want to own, regardless of oil prices: it is one of the largest midstream energy companies in North America, and it has a long history of increasing its dividend.
As a midstream company, Enterprise Products Partners collects royalties from the transportation of natural gas, crude oil, petrochemicals and refined products, all of which have important end uses in several industries, some of which are essential to life. daily. And the company earns these fees under long-term contracts. So whether oil prices fall or rise, Enterprise Products Partners often operates as usual and continues to generate steady cash flow.
This is also why you can count on this stock to earn you a decent passive income at all times. Enterprise Products Partners, in fact, has increased its dividends every year for 23 consecutive years.
Enterprise Products Partners recently made progress in the Midland Basin, which is part of the Permian Basin, acquiring Navitas Midstream Partners and its natural gas assets, and had $2.2 billion worth of projects under construction in end of 2021, including a high-capacity propane dehydrogenation plant to turn propane into an essential petrochemical. These are strong growth moves, and with the stock also yielding a hefty 7.2%, Enterprise Products Partners is a great oil stock to own.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.