The 7 Best Dividend-Paying Energy Stocks to Consider

Stocks to buy

High oil and gas prices are here to stay. And while that could be painful at the pump, it could be very profitable for your portfolio. In fact, owning these stocks – most notably, dividend-paying energy stocks, while fossil fuel prices remain elevated can pay off in three ways. First, high prices mean high profitability for companies across the oil and gas sector. Two, that then gives these companies a greater ability to raise dividends, or to pay out special dividends. Three, high profitability could lead to a bump in respective valuations for stocks, such as:

DHT DHT Holdings $10.83
EGY VAALCO Energy $4.26
EPM Evolution Petroleum $6.19
KMI Kinder Morgan $17.32
SOI Solaris Oilfield $9.50
STR Sitio Royalties $23.13
VTS Vitesse Energy $17.60

DHT Holdings (DHT)

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Just recently, I argued DHT Holdings (NYSE:DHT) was one of the most overlooked small-cap stocks that could outperform the market. My argument hinged largely on the prospect of the oil tanker company continuing to report strong profitability, as increased Chinese oil demand helped to keep tanker prices elevated. Even Evercore analyst Johnathan Chappell has also made a bull case for oil tanker stocks, citing how changes in shipping routes resulting from Russia’s invasion of Ukraine are likely to persist, even if/when the conflict comes to a close. This factor, alongside demand holding steady, may enable DHT to continue paying out its current forward dividend yield of 13.87%.

VAALCO Energy (EGY)

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VAALCO Energy (NYSE:EGY) is another of the top dividend-paying energy stock, which just raised its quarterly dividend by 92%, instantly turning EGY stock into a high-yielder (5.87%). While announced only a week ago, this dividend hike has been months in the making. Back in Oct., when the company closed on its merger with TransGlobe Energy, management indicated its plan to implement this increase. However, a raised dividend isn’t the only benefit stemming from the TransGlobe deal. This merger makes the company more geographically diversified, and was accretive to earnings. Plus, there’s an opportunity for Vaalco to wring out synergistic cost savings. If oil prices hold steady/keep rising as well, EGY may have room to run.

Evolution Petroleum (EPM)

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Based in Houston, Texas, Evolution Petroleum (NYSEAMERICAN:EPM) focuses on acquiring and owning oil and natural gas properties. As stated on its corporate website, Evolution takes a lower-risk approach to how it allocates capital into various energy production assets. Buying and holding the stock could produce strong returns, from both EPM’s 7.75% dividend, as well as from price appreciation. If you believe oil and gas prices are headed higher, owning this stock may be the best way to make such a wager. As a Seeking Alpha commentator argued back in Dec., Evolution Petroleum does not hedge production. This could lead to outsized returns if fossil fuel prices spike once again.

Kinder Morgan (KMI)

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Kinder Morgan (NYSE:KMI) is one of the largest midstream energy companies in the United States. It owns and operates 83,000 miles of oil and gas pipelines, and 140 terminals. Although KMI has slashed its dividend in the past, as InvestorPlace’s Josh Enomoto has pointed out, the company has raised its payout five years in a row. The average annual increase in its dividend during this timeframe has been 17.29%. However, keep in mind that past dividend growth isn’t indicative of how it will play out in the future. Future payout growth may end up being much lower by comparison. Even so, if you’re looking for an established energy stock to buy and hold for yield and steady growth, KMI stock fits the bill.

Solaris Oilfield Infrastructure (SOI)

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Solaris Oilfield Infrastructure (NYSE:SOI) operates in a niche area of the energy business. Solaris isn’t an E&P company nor is it a refiner. It’s not even a traditional oil and gas equipment firm. Rather, Solaris Oilfield Infrastructure is a purveyor of advanced equipment that enables well-site end-users to both maximize efficiency and minimize the environmental impact of hydrocarbon production. Despite its swinging back to consistent profitability, and the prospect of further earnings growth, the market remains skeptical about SOI stock, after its last quarterly earnings report from back in Oct. Shares yield 4.21% at current prices, and sell-side forecasts call for earnings to more than double over the next two years.

Sitio Royalties (STR)

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Similar to Evolution Petroleum, Sitio Royalties (NYSE:STR) invests in oil and gas interests. Formed through the merger of two royalty companies, Sitio has continued to grow by acquisition, most recently with its merger with Brigham Minerals. As I argued recently, STR stock is an excellent energy play for the long haul, for two reasons. First, Sitio sports a very high dividend (12.45% forward yield). Second, STR has strong long-term growth potential. Retaining 35% of its discretionary cash flow to finance additional accretive acquisitions of oil & gas royalty interests, shares are poised to move higher, in tandem with earnings per share (or EPS) growth. With Sitio, high yield and high growth could pave the path to market-beating returns.

Vitesse Energy (VTS)

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Vitesse Energy (NYSE:VTS) has yet to make its first dividend payment. However, Vitesse, which owns non-operating interests in oil and gas wells, will soon become a high-yielder. Earlier this month, the company declared a quarterly cash dividend of 50 cents per share. On an annual basis, this gives VTS stock a forward dividend yield of 11.7%. If you are of the opinion that oil and gas prices will remain at elevated levels, this is another strong vehicle to make that wager. Similar to the dividend-paying energy stocks listed above, there’s also growth potential with VTS. The company intends to grow earnings via both accretive acquisitions, as well as from the development of over 1,100 proven undeveloped drilling sites. With shares up by around 11% since their debut on Jan. 23, consider it now, before more investors catch on.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any other positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.

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