Energy stocks have had a solid year. The average in the S&P500 rose 14% heading into the final month of the year. While this has underperformed the S&P 500, it’s a solid showing considering oil and gas prices have been weaker this year.
Energy demand should continue to grow in 2025 and beyond. This means that several energy stocks still look like attractive long-term investments as we close out 2024. Black Hills (NYSE: BKH), Western midstream partners(NYSE: WES)And Brookfield renewable(NYSE:BEP)(NYSE: BEPC) stand out as great ones to buy before we ring in the new year, according to a few Fool.com contributors.
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Ruben Gregg Brouwer (Black Hills): When it comes to boring stocks, utilities like Black Hills usually rank high on the snooze list. This specific regulated natural gas and electric utility serves 1.3 million customers in parts of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Providing reliable energy is really all it does, but it does it quite well.
This is highlighted by the fact that Black Hills has increased its dividend annually for 54 consecutive years (and paid one for 82 consecutive years). Talk about consistency! And it’s worth noting that the 54 years is enough to get Black Hills on the very elite list of Dividend Kings.
Looking ahead, this trend is likely to continue given the company’s investment-grade balance sheet and $4.3 billion in capital expenditure plans. In short, the country has the resources to support its growth plans. The best part, however, is that the investment plans are very normal for a utility, including things like system modernization and integrity efforts and capacity developments to keep pace with growing demand (and to clean up older generation capacity). These are the kinds of everyday things that regulators like to see.
Now the exciting part of the story. You get all that boring good sleep and a historically high 4% dividend yield. For reference, the S&P 500 yields just 1.2%, and the average utility yields about 2.8%. Wait, a reliable dividend stock with a high yield – maybe Black Hills isn’t so boring after all!
Matt DiLallo (Western Midstream Partners): Western Midstream Partners has a strong year. The master limited partnership (MLP) is on track to grow adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to $2.3 billion, an increase of 11% compared to last year. Meanwhile, the free cash flow is on pace to grow 19% to almost $1.2 billion.
The company has benefited from last year’s acquisition of Meritage Midstream and its organic growth engines. This growthtogether with a number of sales of non-core assetshas helped drive him down leverage ratio to 3.0x, a 0.7x improvement from the end of last year.
The MLP’s growing free cash flow and financial flexibility have made this possible to significantly increase its cash returns. It has increased its quarterly distribution rate to $0.875 per unit ($3.50 annualized). That’s an increase of 52% from the previous level. Western Midstream currently offers a yield of over 9%.
That large return will provide investors with a strong base return in 2025. In the meantime, the MLP has the fuel to continue growing its profits and cash flow. in the future. It is spending $700 million to $850 million on capital projects this year, which should boost its ability to grow cash flow.
The company also has tremendous financial flexibility to make additional acquisitions such as Meritage when opportunities arise. It can also buy back its units opportunistically to further increase value for investors. These catalysts should enable the country to further increase its high-yield distribution.
With high returns and a healthy financial profile, Western Midstream is an excellent option for those who want to comfortably invest in an MLP that offers a Schedule K-1 federal tax form every year. It can provide investors significant tax benefits in the coming years.
Neha Chamaria(Brookfield renewable): Brookfield Renewable is on track for a record year, with funds from operations (FFO) per unit growing 7% in the nine months ended September 30. With the company’s FFO per unit growth of 11% in the third quarter, management says it believes it should be able to achieve its targeted growth of more than 10% FFO per unit by 2024.
The real problem is how Brookfield Renewable finds opportunities to grow its FFO in an otherwise challenging market. While the company generates revenue from renewable assets it owns and operates, it also periodically sells mature assets to finance its growth.
On its third-quarter earnings call, management said 2024 will be the “most successful year for asset recycling ever”, with the company generating record revenues worth almost $2.3 billion from asset sales in the year to September 30 . is a major source of funding for the company, 2024 will also be Brookfield’s “biggest year for growth investments.”
Brookfield Renewable is already one of the largest clean energy companies in the world. With management targeting investments of nearly $8 billion to $9 billion over the next five years, annual FFO growth of at least 10% per unit, and annual dividend growth of 5% to 9%, I think this is a energy stock you might want to buy as we move into 2025.
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Matt DiLallo holds positions at Brookfield Renewable and Brookfield Renewable Partners. Neha Chamaria has no positions in the stocks mentioned. Reuben Gregg Brewer holds positions at Black Hills and Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
The 3 Best Energy Stocks to Buy as 2024 Comes to an End was originally published by The Motley Fool
