Yes, many investors bet on hydrocarbons for their growth potential. But because this sector is so important, so vital to the functioning of the global economy, the industry also provides passive income opportunities. What’s more, you can potentially dial up the risk-reward profile by going after high yields. As I said earlier, the relevance of fossil fuels probably won’t fade anytime soon.
The same can’t be said for other entities that offer very generous income. They could give you a robust yield one quarter and be bankrupt the next. That’s arguably less likely to happen in the oil and gas space if you know where to look. With that, below are high-yield oil stocks to consider.
Devon Energy (DVN)
One of the biggest names among independent oil and gas companies, Devon Energy (NYSE:DVN) focuses on the exploration and production segment. This is also known as the upstream component of the hydrocarbon value chain. Right now, Devon offers a forward dividend yield of 4.63%. Its five-year average yield stands at 4.82%. Further, its payout ratio is very reasonable at 37.07%.
What makes Devon intriguing is the valuation. Right now, DVN stock trades at 1.77X trailing-year sales. That’s lower than the upstream segment’s average sales multiple of 1.93X. Also, during the first quarter of this year, the metric shot up to 2.11X. Overall, in the past year, Devon traded at 1.87X revenue.
To be fair, analysts are modeling weakness in fiscal 2024, with sales dipping to $14.31 billion. That would be a 6.2% decline from last year’s print of $15.26 billion. However, fiscal 2025 could see a recovery to $15.59 billion. That year, the most optimistic expert is modeling for $17.23 billion in sales. Combined with the robust yield, DVN represents one of the top high-yield oil stocks.
Kinder Morgan (KMI)
One of the biggest and most popular high-yield oil stocks, Kinder Morgan (NYSE:KMI) operates in the midstream segment. This component of the value chain focuses on storage and transportation. When you hear on the news stories about pipeline developments, it’s referring to midstream projects. Kinder is vital to economic stability thanks to its vast infrastructural networks.
Not surprisingly, KMI offers a robust forward dividend yield of 5.53%. Its five-year average yield stands at 6.29%. However, if there is a drawback, it’s the payout ratio, which is sky high at 104.13%. However, patience could be your friend.
By the end of fiscal 2024, analysts are modeling for earnings per share to reach $1.21. That’s up 14.15% from last year. On the top line, sales could hit $16.06 billion, up 5.9% from the prior year’s tally of $15.16 billion. Further business expansion could occur next year, with EPS rising to $1.27 on sales of $17.21 billion.
It’s a bit pricey for a midstream company with a sales multiple of 3.01X. Still, with the projected growth and dividend, KMI is worth a look.
Diamondback Energy (FANG)
Another player in the upstream segment, Diamondback Energy (NASDAQ:FANG) is an independent outfit that acquires, develops, explores and exploits unconventional, onshore oil and natural gas reserves in the Permian Basin of West Texas. It’s an attractive idea among investors, particularly because it offers a forward yield of 5.63%. Also, the payout ratio is reasonable at 47.93%.
While the company doesn’t offer the most impressive financials, Diamondback gets the job done. In the past year since Q2, the company posted an average EPS of $4.81. This figure beat the average consensus view of $4.65, yielding an earnings surprise of 3.33%.
Now, if there is a less-than-desirable statistic, it’s that FANG stock isn’t cheap. Right now, shares trade hands at 3.68X sales. That’s higher than its past year average of 3.41X. Also, the sector median stat is only 1.28X.
That said, analysts are modeling significant growth in fiscal 2025. A year-and-a-half from now, sales could shoot up to $15.59 billion. Last year, the company posted sales of $8.41 billion. So, FANG is easily one of the high-yield oil stocks for patient investors.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.