Oil prices have been surging lately, and many energy stocks are back in the spotlight.
But volatility can act as a double-edged sword, presenting both lucrative opportunities for gains and significant risks of losses. This requires investors to tread with caution and employ well-thought-out strategies.
Rather than actively trade the tumultuous waves of the market, some investors have opted to focus on the dividend-paying aspect of the business, collecting passive income from energy companies.
With the average dividend yield of S&P 500 companies standing at 1.5%, energy companies, many of which offer yields significantly higher than the average, present an opportunity for income-focused investors.
Here’s a look at two high-yield energy stocks that Wall Street finds attractive.
Sunoco LP (NYSE:SUN)
Sunoco is a key player in America’s wholesale motor fuels distribution, refined products transportation and storage and terminalling business.
Structured as a master limited partnership, Sunoco distributes motor fuel to around 10,000 convenience stores, independent dealers, commercial customers and distributors in more than 40 states.
The partnership has a quarterly distribution rate of 84.2 cents per unit, which translates to a generous annual yield of 7.3% at the current unit price.
In the second quarter of 2023, Sunoco generated $175 million in distributable cash flow, which provided 1.9 times coverage for its quarterly payout to partners.
The partnership’s current quarterly distribution per unit is about 2% higher compared to a year ago. In the latest earnings conference call, management said that they expect to evaluate future distribution increases annually in the first quarter.
Sunoco stock has risen 7% in 2023 and Mizuho analyst Gabriel Moreen anticipates additional gains ahead. The analyst has a Buy rating on Sunoco and a $53 price target — around 14% above where the stock is now.
Energy Transfer LP (NYSE:ET)
Energy Transfer owns one of the largest portfolios of energy assets in the U.S.
With approximately 125,000 miles of pipelines and associated energy infrastructure, the partnership has a strategic network that spans 41 states and all of the major production basins in the country.
Energy Transfer is affiliated with Sunoco — it owns the general partner interests, the incentive distribution rights and approximately 34% of the outstanding common units of Sunoco.
In July, Energy Transfer announced a quarterly cash distribution of 31 cents per unit. At the current unit price, the amount comes out to an annual yield of 9.1%.
In the second quarter, Energy Transfer’s distributable cash flow (DCF) attributable to its partners totaled $1.55 billion. In the earnings conference call, Energy Transfer Co-CEO Tom Long pointed out that the amount “resulted in excess cash flow after distributions of $579 million.”
Morgan Stanley analyst Robert Kad has an Overweight rating on Energy Transfer and a price target of $17. Considering that the stock trades at $13.57, the price target implies a potential upside of 25%.
Don’t miss real-time alerts on your stocks – join Benzinga Pro for free! Try the tool that will help you invest smarter, faster, and better.
This article Analysts Like These 2 High-Yield Energy Stocks That Pay Up To 9.1% originally appeared on Benzinga.com
© 2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.