Chevron has a 4.3% dividend yield and a 38-year history of annual dividend increases.
EPD has a 6.9% yield and a 27-year streak of annual distribution increases.
Both energy stocks are good investment options, but for vastly different reasons.
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Energy is one of the most important things in the world. Spend one day without power of any kind and you quickly realize that you might as well be living in the Stone Age. Most investors should have some exposure to energy, including the highly volatile oil and natural gas sector. But what’s the best way to include it in your portfolio?
Chevron (NYSE: CVX) and Enterprise Products Partners (NYSE: EPD) are top-notch choices. They both offer attractive yields, but they are vastly different businesses. Here’s how you can pick the one that’s right for your income portfolio.
Before going into the different business models here, it is important to examine how reliable each of these income stocks really is. Chevron is a much older company and has a 38-year streak of annual dividend increases behind it. Enterprise’s streak is 27 years long, which is basically as long as it has existed. Pretty clearly, they stand toe to toe when it comes to income reliability.
That said, there’s a vast difference when it comes to dividend yield. Chevron’s yield is 4.3%. Enterprise’s distribution yield is 6.9%. This isn’t an apples-to-apples comparison, however. Chevron is a traditional corporation, while Enterprise is a master limited partnership (MLP). The MLP structure is a bit complex and it is specifically designed to pass income on to unitholders in a tax-advantaged fashion. The trade off is more work come tax time, thanks to the K-1 form unitholders have to deal with.
If you want to keep your tax life simple, you’ll want to avoid MLPs like Enterprise. But if you want to maximize the income your portfolio generates, you’ll definitely want to consider MLPs. But the bigger difference between Enterprise and Chevron for most investors is going to show up in how they operate.
Enterprise Products Partners is what is known as a midstream MLP. It owns energy infrastructure assets that move oil and natural gas around the world, including storage, pipelines, and transportation assets. These are expensive to build (or buy), but they generate reliable fee income. And the fees are paid for the use of the assets, so the price of the oil and natural gas that they move is far less important to Enterprise’s financial results than commodity prices.
