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4 Top Energy Stocks for Dividend Investors in 2017

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Yes … it's that time of the year again - end of year stock market performance review season. And predictions for 2017.

Which market sector outperformed all others in 2016? Knowing which sector has been hot could point to where you should invest in 2017.

Investors looking for the 'strongest performer' for the U.S. stock market's price action last year need look no further than stocks in the energy sector. Yes, you heard it right.

With a market-thumping 24% return, 'Energy' was the top performing sector S&P sector in 2016 proving that oil is indeed alive and kicking.

The Year in Review

Oil's 2016 journey was marked by sudden sharp sell-offs followed by swift recoveries. However, with crude's wild ride, we saw some big winners - and big losers as well. So essentially, investors with good stock-picking skills made a lot of money, while those who bet on the wrong stocks got absolutely hammered.

By February, prices plunged all the way to a low of $26 per barrel, thanks to the boom in shale oil production and rising output from OPEC. The dramatic slide prompted several analysts to make bold calls on a potential bottom. While some suggested prices might drop as low as $20 a barrel, gloomier estimates called for a sensational $10-per-barrel floor.

But thankfully, none of these bone-chilling forecasts were correct.

A historic OPEC production cut agreement, together with help from non-OPEC producers and slashing investments (in existing and new wells) have seen oil prices more than double from their last February lows to $52.

Energy Roadmap for 2017

Yes, oil had a great 2016 but what about 2017? Will history repeat itself?

While it's hard to predict whether oil will double again and energy will outperform all other sectors next year, there's reason to believe that 2017 could be an excellent one for oil stocks.

After a 2½ year bear market, the rig counts - both U.S. and International - have bottomed and activity is starting to bounce off slowly. Oil has rebounded from its multi-year lows reached in 2016 and while the commodity may not be at a level many thought it would be at the end of the year, even at today's price certain companies are in a position to earn profits.

Throughout the downturn, producers worked tirelessly to cut costs down to a bare minimum and look for innovative ways to churn out more oil from rock. And they managed to do just that by improving drilling techniques and extracting favorable terms from the beleaguered service producers.

With these efforts, many upstream companies have repositioned themselves to thrive even at lower prices. Moreover, lower capital expenditures have led to numerous project cancellations and production losses - another step in reducing the glut of crude.

The deal by members of the OPEC oil cartel to cut output is expected to bring much needed stability to the market with prices set to improve steadily. Multinational oil enterprises, on the back of greater certainty, will now be able revive spending on drilling activities.

Thus, there's a possibility that the sector will see a replay of 2016 - with attractive upside potential and good returns.

Dividend Investing to the Rescue

As evident from the energy market story, stocks can take a sudden turn for the good (or bad), making stock picking a risky game. Every good stock also has its bad day, which further adds to the risk. With uncertainty ruling the markets, it is not surprising that dividend investing has emerged as one of the most popular investing themes.

Dividend stocks are always the investors' preferred choice as they provide steady income and cushion against market risks. These stocks are generally less volatile in nature and hence, are dependable when it comes to long-term investment planning. They not only offer higher income in the current environment - where rates still remain low despite further hikes around the corner - but also provide a cushion against equity market risks.

Dividend stocks are a safe bet to create wealth, as the payouts generally act as a hedge against economic uncertainty and simultaneously provide downside protection by offering sizable yields on a regular basis.

How to Pick the Best Stocks?

Although the benefits of dividend investing cannot be stressed enough, one should keep in mind that not every company can keep up with its dividend paying momentum. Hence, a cautious strategy needs to be followed in order to select the best dividend stocks with potential for steady returns.

We have used the Zacks Stock Screener to narrow down to four stocks that offer current and dividend yield of more than 5%, has a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) and has market cap of $1 billion or more. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Our Choices

Braskem SABAK : Together with its subsidiaries, Braskem SA produces and sells thermoplastic resins. Headquartered in Brazil, the company is the largest petrochemical operation in Latin America.

Zacks Rank: #1

Dividend Yield: 6.80%

Market Cap: $8.5 billion

Summit Midstream Partners L.P.SMLP : Summit Midstream Partners, headquartered in The Woodlands, TX, provides oil and natural gas gathering and processing services across key producing regions in the U.S.

Zacks Rank: #2

Dividend Yield: 9.15%

Market Cap: $1.85 billion

NuStar GP Holdings LLCNSH : San Antonio, TX-based NuStar GP Holdings derives its income from its publicly traded partnership NuStar Energy L.P. NS , which engages in the transportation and storage of crude oil as well as refined products in the U.S., the Netherlands Antilles, Canada, Mexico, and the U.K.

Zacks Rank: #2

Dividend Yield: 7.54%

Market Cap: $1.24 billion

Holly Energy Partners L.P.HEP : Dallas, TX-based Holly Energy Partners is a publicly traded master limited partnership (MLP) that owns and operates a system of crude oil pipelines as well as distribution terminals in the western U.S.

Zacks Rank: #2

Dividend Yield: 7.42%

Market Cap: $2 billion

Bottom Line

Amid the unpredictable energy market setting, investing in these high-yielding dividend stocks might fetch you promising returns.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?

Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

NUSTAR ENERGY (NS): Free Stock Analysis Report

BRASKEM SA (BAK): Free Stock Analysis Report

NUSTAR GP HLDGS (NSH): Free Stock Analysis Report

HOLLY EGY PTNRS (HEP): Free Stock Analysis Report

SUMMIT MIDSTRM (SMLP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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