Top 5 High-Yield Energy Stocks for 2024
December 27, 2023
Top Oil & Gas Plays With Dividend Yields Up to 23%
There was a time when Organization of the Petroleum Exporting Countries (OPEC) members, particularly Saudi Arabia, controlled the world’s oil supply and prices. But record-high production from the U.S. has begun to challenge the dominance of OPEC Plus (OPEC+) as its members continue to desperately cut their production to boost crude oil prices.
In fact, repeated production cuts by OPEC+ since 2022 have been a blessing to North American producers, who’ve been easily making up for those production cuts.
In 2022, the North American oil and natural gas industry raked in record-high profits, and that momentum is expected to continue.
Analysts project that, in 2024, West Texas Intermediate (WTI) oil will average $93.4 per barrel. They also project that natural gas will average $3.23 per million British thermal units (MMBtu), up by 24% from the 2023 average of $2.61 per MMBtu. (Source: “Natural Gas 2023 Forecast & Price Predictions December 2023: Shifting Sentiment Rockets US Gas Futures,” CAPEX, October 17, 2023.)
Record-high U.S. oil and gas production, a bullish outlook for the oil sector, impressive U.S. economic growth, fears of a recession receding, lower inflation, and lower interest rates could make 2024 a banner year for the following top five high-yield energy stocks.
Torm PLC
Torm PLC (NASDAQ:TRMD) is a leading marine shipping company with about 80 vessels that move gasoline, naphtha, diesel, and jet fuel from refiners to their customers. Its ships, which range in size from 45,000 to 115,000 dead weight tonnage (DWT), include Long Range 1, Long Range 2, and Medium Range vessels. (Source: “Our Fleet,” Torm PLC last accessed December 19, 2023.)
Long Range 1 tankers are designed to carry crude oil or refined products. A typical trade would be jet fuel from the Middle East to Europe.
Long Range 2 tankers, which are more than 800 feet long, are typically used for long routes, carrying naphtha from the Middle East to the Far East and diesel from the eastern hemisphere into the Atlantic.
Medium Range tankers, which are smaller than Long Range tankers, can enter more ports and travel on shorter routes, as well as coastal routes. A typical trade would be gasoline from Europe to the U.S.
Thanks to its strong cash generation, Torm is able to provide its shareholders with reliable, high-yield variable dividends. In November 2023, the company’s board declared a payout of $1.46 per share. In full-year 2023, Torm stock paid dividends of $7.01. (Source: “Distribution,” Torm PLC, last accessed December 19, 2023.)
As of this writing, that works out to a yield of 22.02%.
Torm PLC doesn’t have a long history of paying dividends. That said, from a fundamental perspective, TRMD stock’s distributions are safe; the company’s payout ratio is 86.54%.
San Juan Basin Royalty Trust
San Juan Basin Royalty Trust (NYSE:SJT) is an energy company with a 75% net overriding royalty interest in the San Juan Basin of New Mexico. The subject interests are mostly owned and operated by Hilcorp San Juan L.P. (Source: “About Us,” San Juan Basin Royalty Trust, last accessed December 19, 2023.)
Virtually every penny that comes from the trust’s oil and gas leaseholds goes directly to SJT unitholders as monthly dividends.
In December 2023, the company paid dividends of $0.02 per share. In full-year 2023, San Juan Basin Royalty paid dividends of $1.11 per unit, for an inflation-crushing yield of 21.5% (as of this writing). (Source: “Distributions,” San Juan Basin Royalty Trust, last accessed December 19, 2023.)
Because the company’s monthly payout level is tied to production and market prices, it fluctuates. Rising oil prices and high demand should help juice the payouts.
Permianville Royalty Trust
Permianville Royalty Trust (NYSE:PVL) is a Delaware statutory trust that owns the right to receive 80% of the net profits from the sale of oil and gas from conventional properties in Louisiana, New Mexico, and Texas, as well as from unconventional properties in the Haynesville and Permian basins. (Source: “Overview,” Permianville Royalty Trust, last accessed December 19, 2023.)
Conventional oil and gas properties involve using vertical well bores. Unconventional oil and gas properties involve using horizontal well bores.
The trust is upfront about its monthly dividends, noting that its distribution amounts fluctuate depending on production volumes, oil and gas prices, the amount and timing of capital expenditures, and administrative expenses. As a monthly dividend provider, Permianville Royalty Trust releases its financial results every month.
The company declared regular dividends of $0.004 per share in September 2023 and $0.006 per share in October. It also declared special distributions of $0.07 per unit in September and $0.077 per unit in November. (Source: “Cash Distributions,” Permianville Royalty Trust, last accessed December 19, 2023.)
In 2023, the trust declared total dividends of $0.37 per unit, for a yield of 18.2% (as of this writing).
Frontline Plc
Frontline Plc (NYSE:FRO) is a marine shipping company that owns one of the largest and most modern fleets in the industry. It transports crude oil and oil products in the Arabian Gulf, North Sea, West Africa, and the Caribbean. As of September 30, the company’s fleet of vessels included:
- 22 very large crude carriers (VLCCs), capable of carrying 2.0 million barrels of oil
- 25 Suezmax ships, designed to move through the Suez Canal and capable of carrying more than 1.0 million barrels of crude oil
- 18 Long Range 2/Aframax vessels, capable of carrying up to 600,000 barrels of crude oil
(Source: “Interim Financial Information: Third Quarter 2023,” Frontline Plc, November 30, 2023.)
In October 2023, Frontline announced plans to acquire a fleet of 24 “ECO” VLCCs with an average age of 5.3 years, for a total purchase price of $2.35 billion. (Source: “Fully Funded Acquisition of 24 Modern VLCCs From Euronav NV,” Frontline Plc, October 9, 2023.)
Frontline’s goal is to distribute quarterly dividends that are equal to or close to its earnings per share (EPS), adjusted for non-recurring items. The timing and amounts of its dividends are at the discretion of the company’s board of directors. (Source: “Dividend Policy and History,” Frontline Plc, last accessed December 19, 2023.)
As might be expected, the board suspended FRO stock’s dividends during the COVID-19 pandemic. Things eventually turned around, though: in the second quarter of 2022, the board reinstated the dividends at $0.15 per share.
Frontline Plc’s payouts have been significantly higher since then. In December 2023, Frontline stock paid dividends of 0.30 per share. In full-year 2023, Frontline stock paid dividends of $2.57 per share, for a yield of 15.4% (as of this writing).
The company’s payout ratio is just 73.01% (well below the 90% threshold I’m willing to stomach), meaning its distribution is more than safe.
Green Plains Partners LP
Green Plains Partners LP (NASDAQ:GPP) is a fee-based limited partnership that was formed by its parent company, Green Plains Inc (NASDAQ:GPRE). It provides ethanol and fuel storage, terminaling, and transportation services in the U.S. (Source: “Who We Are,” Green Plains Partners LP, last accessed December 19, 2023.)
As of the end of 2022, the partnership owned or leased 27 ethanol storage tanks at or near its parent company’s 11 ethanol production plants in Illinois, Indiana, Iowa, Minnesota, Nebraska, Tennessee, and Virginia. (Source “2022 Annual Report,” Green Plains Partners LP, last accessed December 19, 2023.)
These facilities had a combined throughput capacity to support its parent company’s annual production capacity of approximately one billion gallons.
As of the end of 2022, its ethanol storage tanks had a combined capacity of approximately 25.1 million gallons. Its biofuel terminals had a total storage capacity of about 6.7 million gallons at that time.
Green Plains Partners LP’s transportation assets at the end of 2022 included a fleet of about 2,500 leased railcars. The partnership’s railcars are dedicated to transporting ethanol and other fuels (which are under commercial agreements with its parent company) to refiners throughout the U.S. and international export terminals.
Since going public in 2015, Green Plains Partners hasn’t skipped a dividend. Before the COVID-19 pandemic, Green Plains Partners stock’s quarterly distribution stood at $0.475 per share for eight straight quarters. (Source: “Distribution History,” Green Plains Partners LP, last accessed December 19, 2023.)
In May 2020, during the health crisis, the company’s board reduced GPP stock’s cash distribution to $0.12 per unit. That reduction freed up $33.8 million in cash annually, which the partnership used to pay down its debt and strengthen its balance sheet. (Source: “Green Plains Partners Reduces Quarterly Distribution,” Green Plains Partners LP, April 16, 2020.)
In November 2021, the company raised its distribution from $0.12 to $0.435 per share and then kept raising it for the next four quarters. It has held its quarterly distribution at $0.455 per share since November 2022. In 2023, this worked out to total dividends of $0.455 per share, for a yield of 14.4% (as of this writing).
I wouldn’t be surprised if Green Plains Partners LP’s board increases the partnership’s quarterly distribution over the coming quarters to at least where it was before the pandemic.
The Lowdown on High-Yield Energy Stocks
The outlook for the oil and natural gas industry in 2024 is sunny, amid high demand and global inventories at their lowest levels since 2017. Not all oil and gas companies are created equal, though, and the industry will inevitably face pressure.
That’s why it’s important for income investors to look at specific companies, preferably those with a solid balance sheet and a history of paying reliable quarterly or monthly dividends. That could help dividend hogs weather any near-term share-price volatility.
