The 2 Best Energy Stocks I’d Buy Without Hesitation
Energy stocks have to be treated with extreme caution. Investors are often most fond of oil and natural producers like Diamondback Energy (NASDAQ: FANG) when commodity prices are high. That is, indeed, when producers will be making the most money. But history is very clear: energy prices are highly volatile. They will, eventually, fall, which…
Energy stocks have to be treated with extreme caution. Investors are often most fond of oil and natural producers like Diamondback Energy(NASDAQ: FANG) when commodity prices are high. That is, indeed, when producers will be making the most money. But history is very clear: energy prices are highly volatile. They will, eventually, fall, which is bad for companies like Diamondback Energy.
There’s another option in the energy sector. You can buy a midstream business like Enterprise Products Partners(NYSE: EPD) or Enbridge(NYSE: ENB). Demand for energy is more important than its price to these two service providers. Here’s why you may want to buy them now and why a market crash could be a great time to add them to your portfolio.
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The big picture in the energy sector
There are three segments in the energy sector. The upstream is filled with producers like Diamondback. The downstream is where chemical and refining companies live. Both the upstream and the downstream are highly volatile because the products they sell are commodities. For example, Diamondback Energy’s realized sales price for oil and natural gas rose 27% in the first quarter. That’s huge and helps explain why the stock is up 35% so far in 2026.
The problem is that oil prices are high because of the geopolitical conflict in the Middle East. When that situation ends, oil prices are likely to decline. Declining oil prices will hurt commodity-exposed businesses like Diamondback Energy. If history is any guide, the stock will probably fall along with oil prices.
There is another segment of the energy sector: The midstream. Midstream businesses own the energy infrastructure, such as pipelines, that help to move oil and natural gas around the world. Enterprise and Enbridge fall into this segment of the energy sector. They charge fees for the use of their assets, generating reliable cash flows through the entire energy cycle.
High yields and reliable dividend growth
The big draw for both Enterprise and Enbridge will be their lofty yields. Enterprise, a master limited partnership (MLP), has a distribution yield of 5.7%. Enbridge, a Canadian company, has a dividend yield of 5.1%. Given the S&P 500 index‘s (SNPINDEX: ^GSPC) paltry 1.2% yield, Enterprise and Enbridge will likely be very attractive to dividend lovers.
However, there’s more to the story than just yield. Enterprise has increased its distribution for 27 consecutive years. Enbridge’s dividend streak is 31 years in Canadian dollars. The price of oil has risen and fallen many times over the last quarter of a century, and these two high-yielders haven’t skipped a beat.
Enterprise and Enbridge are so reliable because demand for oil and natural gas is high almost all of the time. These fuels are vital to modern society regardless of their price. That means volume through the midstream systems operated by Enterprise and Enbridge is high most of the time. As toll takers, they generate consistent and reliable cash flows to cover their large dividends.
Buy now or during a market crash
If you are looking at the energy sector right now, Enterprise and Enbridge are attractive because they sidestep commodity risk. And the roughly 5% yields they offer get you halfway to the 10% return that investors often expect from investing in stocks. Now consider what would happen if there were a market crash, taking everything down with it.
If you owned Enterprise and Enbridge, you would likely keep collecting your dividend payments even if their share prices fell. If you don’t own them, a falling share price would push their yields even higher, bringing new investors closer to that 10% return (it is possible that the yields even hit 10%). That would be a huge buying opportunity for what are, basically, highly reliable businesses operating in the highly volatile energy sector.
And you may not have to wait long for such a pullback, since Wall Street is worried that high energy prices could trigger a global recession. And a recession would likely be accompanied by a bear market.
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Reuben Gregg Brewer has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
Market Crash: The 2 Best Energy Stocks I’d Buy Without Hesitation was originally published by The Motley Fool
