The vast majority of energy companies have yet to report Q4 earnings and to update investors on guidance. Most have, however, now declared their dividends for winter quarter 2021. And encouragingly, all that have so far have elected to either maintain or increase payouts.
To be sure, the number of energy companies growing dividends is still small, especially relative to a few years ago. We continue to expect more of the best in class companies and MLPs to follow Enterprise Products Partners’ (NYSE: EPD) lead in returning to a policy of regular increases. But given concerns about the economy and the sector’s inability to raise capital on reasonable terms, managements will likely stay conservative with their cash this year.
The good news is holding dividends steady alone is a pretty clear statement from companies that they’ve made the adjustments to the energy price cycle. And though forecasts can change, all of our Model Portfolio and even High Yield Energy List stocks now expect to generate enough free cash flow in 2021 to cover both dividends and all CAPEX.
A low level of spending now does, all else equal, mean reduced asset growth going forward. But with even Enterprise yielding almost 9 percent currently, cash flow growth is far less essential to energy stocks’ value proposition than it’s been in some years.
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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on May. 26, 2021
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