Some Wall Street analysts are starting to warn that oil prices could reach levels far above current levels. A perfect storm of supply shocks and rising demand could push oil to $180 per barrel. The escalating conflict in the Middle East, involving Iran and now Hezbollah and the Houthis, disrupting the Strait of Hormuz, could remove millions of barrels from the market. If OPEC+ maintains or deepens cuts, the shortage worsens, which currently seems highly unlikely. At the same time, strong demand from China, India, and emerging markets, combined with years of underinvestment in supply, leaves very little cushion. A weaker U.S. dollar, which has recently been much stronger, and speculative buying could further accelerate the surge beyond fundamentals. While investors don’t want to see oil stay elevated for an extended period, it makes sense to buy ultra-high-yielding energy stocks now.
While mega-cap energy giants have surged over the past nine months and now trade at higher valuations, other sector leaders still offer attractive entry points with reliable, growing dividends. We screened the 24/7 Wall St. energy database, and we identified four ultra-high-yield bargains that income-focused investors may want to consider—all rated Buy by top Wall Street firms we follow.
Why do we cover the ultra-high-yielding energy dividend stocks?
Since 1926, dividends have accounted for approximately 32% of the S&P 500’s total return, while capital appreciation has accounted for 68%. Therefore, sustainable dividend income and the potential for capital appreciation are essential to total return expectations. A study by Hartford Funds, in collaboration with Ned Davis Research, found that dividend stocks delivered an annualized return of 9.18% over the past 50 years (1973 to 2023). Over the same timeline, this was more than double the annualized return for non-payers (3.95%).
Energy Transfer
Energy Transfer (NYSE: ET) is one of North America’s largest and most diversified midstream energy companies. This top master limited partnership is a safe option for investors seeking energy exposure and income, as the company pays a 6.97% distribution yield. It owns and operates one of the largest and most diversified portfolios of energy assets in the United States, with a strategic footprint across all major domestic production basins.
The company is a publicly traded limited partnership with core operations that include:
- Complementary natural gas midstream, intrastate, and interstate transportation and storage assets
- Crude oil, natural gas liquids (NGLs), and refined product transportation and terminalling assets
- NGL fractionation
- Various acquisition and marketing assets
Following the acquisition of Enable Partners in December 2021, Energy Transfer owns and operates over 114,000 miles of pipelines and related assets in 41 states, spanning all major U.S. producing regions and markets. This further solidifies its leadership position in the midstream sector.
Through its ownership of Energy Transfer Operating, formerly known as Energy Transfer Partners, the company also owns Lake Charles LNG; the general partner interests, the incentive distribution rights, and 28.5 million standard units of Sunoco (NYSE: SUN); and the public partner interests and 39.7 million standard units of USA Compression Partners (NYSE: USAC).
TD Cowen has a Buy rating on the shares, with a $21 target price.
Mach Natural Resources
This stock may be the best total-return candidate in the bunch, paying a massive 14.40% dividend. Mach Natural Resources (NYSE: MNR) is an independent upstream oil and gas company focused on the acquisition, development, and production of oil, natural gas, and NGLs reserves.
The company operates a diversified portfolio across the Anadarko, Permian, and San Juan Basins. The assets are located throughout Western Oklahoma, Southern Kansas, and the panhandle of Texas and consist of approximately 5,000 gross operated proved developed producing wells.
Additionally, it owns a portfolio of midstream assets that support its leases, including ownership of four processing plants with a combined processing capacity of 353 million cubic feet per day and 1,480 miles of gas-gathering pipelines. It also owns water infrastructure consisting of 880 miles of gathering pipeline and 88 disposal wells.
Truist Financial has a Buy rating with a huge $24 target price.
TXO Partners
This master limited partnership is a high-yielding, quality energy name that pays a dependable 13.80% dividend. TXO Partners (NYSE: TXO) is focused on the acquisition, development, optimization, and exploitation of conventional oil, natural gas, and NGLs reserves in North America.
The company’s acreage positions are concentrated in the:
- Permian Basin of West Texas and New Mexico
- San Juan Basin of New Mexico and Colorado
- Williston Basin of Montana and North Dakota
The company’s assets consist of approximately 1,117,628 gross (549,229 net) leasehold and mineral acres. Its assets include a 50% interest in Cross Timbers Energy.
As an operator, it designs and manages the development, recompletion, or workover of all the wells it operates, and supervises day-to-day operation and maintenance activities. The company markets the majority of the natural gas, NGL, crude oil, and condensate production from the properties on which it operates.
Stifel has a Buy rating with a $19 target price.
