High-Yield Energy Stocks to Consider Amidst Volatile Oil Prices

The oil prices recently hit the lowest levels of years, whereas Brent crude plummeted to $69.19 per barrel, along with U.S. West Texas Intermediate (WTI) closing at $65.75 due to increasing concerns about weakening global demand. High-yield oil stocks are finding their way into the portfolios of income-seeking investors who look to take refuge from volatility.

Overview of Current Oil Market Conditions

Below, I have identified three such quality dividend paying stocks: EOG Resources, Inc. (EOG), Energy Transfer LP (ET), and Sabine Royalty Trust (SBR), which could provide stable returns to your portfolio.
Pressure follows after the Organization of the Petroleum Exporting Countries (OPEC) revised its demand outlook for 2024 and 2025 down, creating concern that the market becomes oversupplied. OPEC has upgraded its forecast for world oil demand on Tuesday, increasing it by 2.03 million bpd by 2024. The body had predicted an increase of 2.11 million bpd last month. Meanwhile, OPEC reduced the growth rate of demand from 1.78 million bpd in 2025 to 1.74 million bpd.

However, with the U.S. Energy Information Administration (EIA) coming out more bullish on 2024, the picture remains almost dire. The EIA projects that global oil demand will break yet another record at an average of 103.1 million barrels per day, which happens to be 200,000 barrels per day higher than it previously anticipated. Meanwhile, price pressure from oil refuses to fade away, mainly because of the slowing of China’s economy, which leaves a shadow over world markets.

Against this context, let’s have a look at the core parameters of the featured Energy – Oil & Gas stocks starting with the third option.

Stock #1: Sabine Royalty Trust (SBR)

SBR holds royalty and mineral interests in various oil and gas production properties in the United States. Its royalty and mineral interests comprise landowner’s royalties, overriding royalty interests, minerals, production payments, and other similar non-participatory interests in certain producing and proved undeveloped oil and gas properties.

On September 6, the company issued a cash distribution to the units of beneficial interest of the company’s unit holders of $0.421310 per unit. The distribution shall be paid on September 30, 2024, to the unit holders of record on September 16, 2024.

2024 STOCK MARKET OUTLOOK

SBR pays a total annual dividend of $5.06 per unit, which, based on its present share price of $59.64, works out at a yield of 8.42%. The company’s average yield over the last four years is 8.90%. Its three-year average CAGR in terms of increase in its payout has been 34.4%.

At 100%, SBR’s gross profit margin for trailing-12-months is 122.1% above the industry average of 45.03%. Similarly, the stock’s trailing-12-month EBIT and net income margins are at 97.16% and 96.48%, respectively, which are healthy compared with corresponding industry averages of 20.68% and 11.70%.

During the fiscal second quarter which ended on June 30, 2024, SBR reported royalty income of $22.61 million, up by an impressive 29.7% year-over-year, while its distributable income stood at $22.08 million; that is a rise of 32.2% year-over-year. Its distributable income also increased by 31.3% year-over-year to $1.51 per unit.

Its revenues and EBIT grew 34.8% and 36.9%, respectively, over the last three years. Moreover, its EPS has grown by a CAGR of 36.9% during the same period.

The stock lost 2.2% in the last six months as it closed the last trading session at $60.03.

An overall rating of B in the POWR Ratings reflects SBR’s bright prospects. It translates to a Buy in our proprietary rating system. The POWR Ratings calculate 118 different factors considering each weighed to an optimal degree.

This company has a B ranking in Growth, Sentiment, and Quality. SBR ranked #11 among 80 stocks in the Energy – Oil & Gas industry. Find all of the SBR ratings-Value, Momentum, and Stability-here.

Stock #2: EOG Resources, Inc. (EOG)

EOG is a company that focuses on the exploration and production of crude oil as well as natural gas. It explores, develops, produces, and markets crude oil, NGLs, and natural gas throughout major producing basins mainly in the United States, the Republic of Trinidad and Tobago, and internationally.

On August 1, the company’s Board of Directors declared a dividend of $0.91 per share on EOG’s common stock. The dividend is payable on October 31, 2024 to shareholders of record at the close of business on October 17, 2024.

With six years of consecutive dividend growth, EOG pays an annual dividend of $5.14 per share, which translates to a yield of 4.36% on the current share price. Its four-year average dividend yield is 4.76%. Moreover, the company’s dividend payouts have increased at CAGRs of 31.2% and 30.3% over the past three and five years, respectively.

EOG’s gross profit and EBITDA margins for the last 12 months stood at 62.73% and 56%, which are 39.3% and 58.8% higher than the industry averages of 45.03% and 35.27%, respectively. Similarly, its trailing-12-month ROCE of 27.06% is significantly higher than the 13.06% industry average.

During the second quarter, ended June 30, 2024, EOG’s total revenue grew 8.1% year over year to $6.03 billion. Its operating income climbed 8.1% from the year-ago level to $2.13 billion. The company’s adjusted net income was $1.81 billion and $3.16 per share. Both figures represent an increase of 24% and 26.9% year over year, respectively. Its free cash flow was $1.37 billion, or 31.9%, year over year.

Street projects EOG’s FY EPS to increase by 4% from the year-earlier figure to $12.16. Its current-year revenue is expected to grow by 2.2% from the year-ago figure to $24.72 billion.

Additionally, the stock’s top-line and EBITDA revenue have grown at CAGRs of 20.4% and 28%, respectively during the past three years. Further, its EPS has increased at a CAGR of 58.8% over that period.
Shares of EOG gained 74.7% in the last year and 44.3% year-to-date to close Friday’s trading session at $117.90.

It should come as little surprise that EOG holds an overall B grade, equivalent to Buy in our own rating system. Quality It gets an A Stability grade. Of 80 stocks in its industry, it ranks #10.

In addition to the POWR Ratings we’ve shared above, we also have EOG’s ratings for Growth, Value, Momentum, and Sentiment. Find all EOG ratings here.

Stock #3: Energy Transfer LP (ET)

ET is engaged in providing energy-related services. This company owns and operates a natural gas transportation pipeline, natural gas storage facilities, and nearly 20,090 miles of interstate natural gas pipeline. In addition to these, it also distributes natural gas to electric utilities, independent power plants, local distribution and other marketing companies, and industrial end-users.

On 9 August, ET paid its unitholders a dividend of $0.32 per common unit for the second quarter, or 3.2% year over year. The company pays an annual distribution of $1.28 a unit, yielding 8.07% on its current share price. The average dividend yield for the last four years is 8.86%.

On July 15, the company acquired WTG Midstream Holdings LLC in cash and common units for $2.28 billion, as well as 50.8 million newly issued ET common units. The purchase will strengthen ET’s Midland Basin system with 6,000 miles of gas-gathering pipelines, eight gas processing plants that have a combined capacity to process 1.3 Bcf/d, as well as two under construction.

OPEC’s Revised Demand Outlook for 2024 and 2025

The deal will also add volumes of NGL and natural gas, hence extra revenue during fees on gathering, processing, and transport. WTG assets will add $0.04 of Distributable Cash Flow per unit in 2025 and increase to $0.07 by 2027, as estimated by ET.

Its trailing-12-month asset turnover ratio stands at 0.74x, which is 48.9% higher than the industry average of 0.50x. Likewise, its 13.59% trailing-12-month return on capital employed is 4.1% above the industry average of 7.39%.

ET’s revenues increased 13.1% year-over-year during the second quarter that ended June 30, 2024, to $20.73 billion. Its operating income climbed 25.2% from the year-ago value to $2.29 billion. Net income attributable to partners came in at $1.31 billion and $0.35 per common unit, up 44.2% and 40% from the prior year’s quarter, respectively.

More importantly, the group’s adjusted EBITDA rose by 20.4% year over year to $3.76 billion. And its adjusted distributable cash flow was up 31.2% from the year-ago value to $2.04 billion.

Conclusion

Navigating the Energy Market for Stable Returns

Analysts predict ET’s third-quarter revenue, ending September 2024, will up 13.2% year over year to $23.47 billion. EPS for the same quarter is expected to soar by 120.3% from prior-year to $0.37. Revenue and EPS for fiscal year 2024 are expected to register a year-over-year growth of 13.3% and 31.6% to $89.01 billion and $1.43, respectively.

Revenues and net income have grown at CAGRs of 17.1% and 5.8%, respectively, over the last three years. The same period has also seen its levered FCF grow by a 5.9% CAGR.

The stock of ET is up 19.6% over the last nine months and closed Thursday at $15.87.

ETRs POWR Ratings are excellent for outlook. In total, the stock is rated B, which equates to a Buy in our in-house rating system.

It scores an A in Growth and B in Value, Momentum, and Stability. ETR ranks #2 in the same industry. For more POWR Ratings of ETR for Sentiment and Quality.

Introducing three oil stocks with high yields that are worth considering for investment. These stocks have demonstrated strong performance in the oil industry and offer attractive dividend yields. With a formal tone, this document highlights promising investment opportunities for those seeking to capitalize on the oil market.

EOG shares traded up 23 cents, or 0.20%, in real-time Thursday afternoon to $118.13. For the year to date, EOG has sold off -0.20% while the benchmark S&P 500 index has rallied 18.21%.