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Where does oil go? You won’t care if you own these three energy stocks.

Oil prices are notoriously volatile. Over the past year, they have gone from a high above $90 a barrel to a low in the $60s. That volatility can have a significant impact on oil companies’ profits.

However, some oil stocks are much less sensitive to the ebb and flow of crude oil prices. Midstream giants Partners for business products (NYSE:EPD), One ok (NYSE: OKE)And Enbridge (NYSE: ENB) stand out for the overall stability of their revenues, according to some Fool.com contributors, because they don’t have much direct exposure to commodity prices. If you own these pipeline stocks, you won’t worry too much about oil prices.

Enterprise Products Partners generates cash throughout the cycle

Ruben Gregg Brouwer (Enterprise Products Partners): Oil and natural gas prices rise and fall dramatically over time. But demand for these fuels, which are essential to the global energy system, generally remains fairly robust regardless of energy prices. After all, people still need power, even when economic activity is weak. That’s why Master Limited Partnership (MLP) Enterprise Products Partners is such a reliable income investment.

Business owns the energy infrastructure that helps move oil and natural gas from where it is produced to where it is used. It is largely paid for the use of its assets. The price of the raw materials flowing through the system is much less important than the demand for those raw materials. The best example of how reliable Enterprise’s operations are? The 25 years of annual distribution increases it has delivered to unitholders.

This streak is backed by an investment grade-rated balance sheet. And the MLP’s distributable cash flow covered its 2023 distribution by as much as 1.7 times, leaving plenty of room for setbacks before there was a risk of a distribution cut. To be fair, Enterprise’s distribution yield of 7.1% will account for the lion’s share of returns here. But add to that distribution growth of just 3%, which is reasonable to expect in the future, and you have a 10% return. That’s the kind of story that both income investors and growth investors (who might be reinvesting those big returns) could get behind.

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Built to deliver resilient growth

Matt DiLallo (Oneok): Oneok operates a diversified, integrated midstream system. The company owns 50,000 miles of natural gas, natural gas liquids, refined products and crude oil pipelines. It also offers a variety of primarily fee-based midstream services to customers. These assets generate very stable cash flow based on the volumes flowing through the network, and not based on the price of the underlying raw materials. As long as energy demand grows, the company’s profits should continue to rise, which has been the case in the past decade:

A slide showing Oneok's steady growth.

Image source: Oneok.

Oneok’s sustainable business model has allowed the company to achieve dividend stability for more than 25 years. While the pipeline company has not increased its payout every yearit has grown its dividend by more than 150% over the past decade, leading its closest peers.

The company is in a strong position to further grow profits and dividends over the next four years. The main catalyst is last year’s $18.8 billion acquisition of Magellan Midstream Partners. That deal strengthened the company’s diversification and growth profile. Oneok expects cost savings and commercial synergies to drive free cash flow per share growth of more than 20% through 2027. The company recently entered into an agreement smaller pipeline acquisitions to accelerate the ability to leverage these synergies.

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Oneok expects its growing free cash flow to give the company the fuel to grow its already attractive business 4.9% return dividend at 3% to 4% per year for the next four years. Additionally, the company plans to repurchase $2 billion worth of stock during that period. It expects to realize these cash returns while investing in and strengthening organic growth projects already solid balance sheet.

So while oil prices could ebb and flowOneok should continue to grow its earnings, high-yield dividend and shareholder value in the coming years.

A reliable oil supply with high returns

Neha Chamaria (Enbridge): No oil and gas stock is immune to oil and gas price fluctuations, but some are more resilient to commodity price shocks than others, largely because of their business model and capital efficiency. Enbridge is one such stock: If you own it, you don’t really have to worry about where the oil is going, as the stock will likely reward you in the long run regardless of how the oil has fared, largely thanks to the dividends.

ENB chartENB chart

ENB chart

Enbridge has the largest liquid pipeline network in North America, transporting nearly 30% of all crude oil produced. It also transports large quantities of natural gas and has extensive gas distribution and storage facilities. These are regulated assets and Enbridge provides its services under long-term contracts. In fact, as much as 97% of Enbridge’s cash flows are supported by long-term contracts or toll payments regulated by the energy regulator. That makes cash flows very stable and predictable, which explains why Enbridge can afford to increase its dividend payout even as oil prices fall. The energy infrastructure giant has increased its dividend every year for the past 29 years in a row, and shareholders have earned rich returns by reinvesting those dividends, as the chart also shows.

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Yet Enbridge plays it safe and pays out only about 60% to 70% of its distributable cash flows in dividends. This leaves the company with enough cash to reinvest in its operations and growth, while ensuring its shareholders continue to receive larger dividend checks each year. Overall, this makes Enbridge the kind of oil stock to own at any time, with the stock’s high dividend yield of 7.3% further increasing its appeal.

Should you invest $1,000 in Enterprise Products Partners now?

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Matt DiLallo holds positions at Enbridge and Enterprise Products Partners. Neha Chamaria has no positions in the stocks mentioned. Reuben Gregg Brewer has positions in Enbridge. The Motley Fool holds and recommends positions in Enbridge. The Motley Fool recommends Enterprise Products Partners and ONEOK. The Motley Fool has a disclosure policy.

Where does oil go? You won’t care if you own these three energy stocks. was originally published by The Motley Fool

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