As a dividend growth investor, I look to diversify my portfolio by investing in different sectors. Doing so helps to mitigate risk. Some sectors perform better than others in different economic conditions. Consider the following chart that ranks the historical performance of each GICS sector and the S&P 500 since 2007. The sectors that outperformed the S&P 500 varies from year to year.
Since we don’t know which sectors will outperform the S&P 500 this year and in future years, it is sensible to consider investing in different sectors.
In this article series, I present the top-ranked dividend growth stocks in each GICS sector. My watch list for candidates is Dividend Radar, a list of stocks trading on U.S. Exchanges with dividend increase streaks of at least five years. The list is updated and published every Friday and is available for download here. The latest edition (dated July 2, 2021) contains 761 stocks and 22 Energy sector stocks.
This article presents the seven top-ranked dividend growth stocks in the Energy sector. Here are the previous articles in this series, in case you missed them:
The Energy Sector
Companies within the Energy sector are directly or indirectly involved in producing and distributing the energy needed to power the economy. Energy companies are sometimes categorized based on how the energy is sourced, either from renewable or non-renewable sources. The Energy sector includes companies involved with oil and gas drilling and production, pipeline and refining, mining, renewable energy, and specialty chemicals.
Sector and Performance Comparison
Let’s compare the sector averages and historical performance of the GICS sectors over different periods to see how the Energy sector compares:
The table is color-coded to show the highest (green) and lowest (red) values in each column. At 6.02%, the Energy sector has the highest average yield of the GICS sectors. It also has the highest average Beta (1.17). This sector has performed poorly in the recent past, as evidenced by its 3-Yr and 5-Yr performance columns.
Sector performance charts give another interesting perspective, especially when comparing those performances to the performance of the S&P 500:
The Energy sector is the only sector with negative returns over the past five years. Looking at the 1-year time frame, we see that the Energy sector has slightly outperformed the S&P 500.
Quality Assessment
I use DVK Quality Snapshots to assess the quality of dividend growth stocks. To rank stocks, I sort them by descending quality scores, breaking ties by using the following factors, in turn:
- SSD Dividend Safety Scores
- S&P Credit Ratings
- Dividend Yield
I rarely need to break ties with Dividend Yield.
DVK Quality Snapshots is an elegant and practical system, which I’ve used with great effect since 2019 in managing my DivGro portfolio. I use a rating system that maps directly from the quality scores:
Top-Ranked Energy Sector Stocks
Note that I’m long CVX in my DivGro portfolio.
1. Chevron Corporation (CVX)
Founded in 1984 and based in San Ramon, California, CVX is a multinational energy corporation involved in all aspects of the oil and gas industries, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. CVX is the fifth-largest integrated energy company with operations in about 180 countries.
2. Enterprise Products Partners L.P. (EPD)
Founded in 1968 and based in Houston, Texas, EPD provides midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, petrochemicals, and refined products. EPD operates through four segments: NGL Pipelines & Services; Crude Oil Pipelines & Services; Natural Gas Pipelines & Services; and Petrochemical & Refined Products Services.
3. ConocoPhillips (COP)
COP explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide. The company primarily engages in conventional and tight oil reservoirs, shale gas, heavy oil, liquefied natural gas, oil sands, and other production operations. COP was founded in 1917 and is headquartered in Houston, Texas.
4. Magellan Midstream Partners, L.P. (MMP)
Founded in 2000 and headquartered in Tulsa, Oklahoma, MMP is a publicly traded partnership engaged in the transportation, storage, and distribution of refined petroleum products and crude oil in the United States. MMP owns the longest refined products pipeline in the USA, with access to about half of the nation’s refining capacity.
5. Enbridge Inc. (ENB)
Founded in 1949 and headquartered in Calgary, Canada, ENB is an energy transportation and distribution company with operations in the United States, Canada, and internationally. The company operates the world's longest crude oil and liquids pipeline system. ENB owns and runs Canada's largest natural gas distribution company.
6. Exxon Mobil Corporation (XOM)
XOM is the world's largest publicly traded international oil and gas company. Founded in 1882 and based in Irving, TX, the company is engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture, and other energy-related businesses. The majority of XOM's earnings come from operations outside the United States.
7. Imperial Oil Limited (IMO)
Incorporated in 1880 and headquartered in Calgary, Canada, IMO is a subsidiary of Exxon Mobil Corporation. The company’s Upstream segment explores for and produces crude oil, natural gas, synthetic oil, and bitumen. IMO’s Downstream segment transports and refines crude oil, while its Chemical segment manufactures and markets various petrochemicals and polyethylene.
