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The single most important fact to understand about energy stocks is that they can be very volatile. That's inherent to the industry, given that oil and natural gas are commodities. There's one more factor here, however, since clean energy is an increasingly important source of power around the world. Here are two high-yield energy stocks to buy now and hold for the long term that take both of these factors into consideration.
The negatives you have to consider in the energy patch
The price of West Texas Intermediate (WTI) crude oil, a key U.S. oil benchmark, fell below zero at one point during the worst of the coronavirus pandemic. There were technical reasons for that dramatic, and shocking, price decline, but it highlights the very real downside risk when it comes to owning energy stocks.
Just a couple of years later, WTI was trading hands at well over $100 a barrel. That shows not only the upside potential, but the rapid sentiment shifts that can take place in the industry. While this particular swing was extreme, dramatic ups and downs are very common.
That's a short-term issue that energy investors have to contend with. A longer-term trend is the fact that clean energy is, slowly, displacing oil and natural gas in the energy sector. This is likely to be a decades-long transition, but the world is very clearly moving toward cleaner energy sources. For example, coal has been losing ground in the U.S. electricity space to natural gas, which is cleaner-burning. All the while, solar and wind power have been ramping up at an incredible clip, albeit from a small base.
If you are a dividend investor looking at the energy sector and you want to take a buy-and-hold approach, you need to keep these two factors in mind. TotalEnergies (NYSE: TTE) and Enbridge (NYSE: ENB) make good high-yield investment choices.
Strong foundations with a clean energy hedge
TotalEnergies is one of the largest integrated power companies on planet Earth. Its portfolio is both geographically diverse and spread across the entire energy sector, from the upstream (oil production) through the midstream (pipelines) and all the way into the downstream (chemicals and refining). This diversification helps to soften the inherent swings of the energy sector, since each segment of the industry operates a bit differently through the cycle. Add in a 5.5% dividend yield (U.S. investors have to pay French taxes, but can claim a portion of that back come April 15), and you have a pretty solid investment option in the energy patch.
It gets better, because TotalEnergies has made an explicit commitment to investing in clean energy. While peers BP and Shell made the same commitment, they cut their dividends as they announced their plans. TotalEnergies maintained its dividend, specifically because it knew that investors cared deeply about the income the stock generated for them.