Reuben Gregg Brewer, The Motley Fool
4 min read
In This Article:
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Oil prices have been weak of late, but that won't derail Enterprise Products Partners or Enbridge.
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Enterprise and Enbridge operate in the midstream segment of the broader energy sector.
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Enbridge has a 6% yield while Enterprise is yielding 6.8%.
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10 stocks we like better than Enterprise Products Partners ›
The average energy stock has a yield of around 3.6%. You can do way better than that with either Enbridge (NYSE: ENB) or Enterprise Products Partners (NYSE: EPD), which at this writing yield 6% and 6.8%, respectively. Those lofty yields, however, aren't a sign of risk. They are actually a no-brainer opportunity to add two reliable and growing income streams to your dividend portfolio.
Here's what you need to know.
The energy sector is known for its volatility, thanks to the commodity nature of the products it produces. At the beginning of the chain is oil and natural gas, which can and do see swift and dramatic price changes both up and down. At the end of the chain are chemicals and refined products, which use volatile oil and natural gas as inputs for products that themselves are often volatile commodities. These segments of the energy sector are known as the upstream and downstream, respectively.
If you are going to invest in the energy sector the one thing you need to understand is that volatility is the norm. At least it is the norm for the upstream and the downstream. There's another industry segment known as the midstream that doesn't operate with the same dynamics. The midstream simply connects the upstream and downstream to each other and the rest of the world. Midstream companies generally charge fees for moving oil, natural gas, and the products into which they become.
Midstream businesses like Enbridge and Enterprise Products Partners own energy infrastructure like pipelines, storage, processing, and transportation assets. The world simply can't get the energy it needs without these physical assets, so the fees midstream companies produce tend to be fairly consistent regardless of whether oil prices are high or low. Demand is the more important determinant of success for midstream operators.
Whether you are looking at the midstream sector when energy prices are relatively weak like today or you are considering them when energy prices are high, the story doesn't materially change. The proof of that comes from the three-decade streak of annual dividend increases that back's Enbridge's lofty dividend yield. And the 26-year streak of distribution hikes that back's Enterprise's yield.
