Exxon Mobil (XOM)
Let’s start with one of the largest blue-chip stocks in the energy space: Exxon Mobil.
Thanks to strong commodity prices, the oil-producing giant gushes profits and cash flow. In Q1, Exxon earned $5.5 billion in profits, a huge increase from the $2.7 billion in the year-ago period. Free cash flow totaled $10.8 billion for the quarter, compared to $6.9 billion in the same period last year.
Solid financials allow the company to return cash to investors. Exxon pays quarterly dividends of 88 cents per share, translating to an annual yield of 3.4%. Management has also increased the company’s share repurchase program to up to $30 billion through 2023.
On Tuesday, Evercore ISI analyst Stephen Richardson upgraded Exxon from ‘in line’ to ‘outperform’ and set a price target of $120 — implying potential upside of 15%.
Enterprise Products Partners (EPD)
Moving up the yield ladder we have Enterprise Products Partners, which operates approximately 50,000 miles of natural gas, natural gas liquid (NGL), crude oil, refined products, and petrochemical pipelines.
Structured as a master limited partnership, EPD pays oversized cash distributions to investors and grows them over time. Right now, the stock yields a generous 6.5%.
The partnership is outearning its payout. In Q1, EPD generated record distributable cash flow of $1.8 billion, which provided 1.8 times coverage of its quarterly distribution.
After EPD reported Q1 results, Mizuho analyst Gabriel Moreen reiterated a Buy rating on the stock and raised the price target from $30 to $32 — roughly 12% above where the stock sits today.
Magellan Midstream Partners (MMP)
Magellan Midstream is another high-yield master limited partnership well-positioned for this commodity cycle.
Magellan has 9,800 miles of refined products pipelines, 54 connected terminals, and two marine storage terminals. It also owns around 2,200 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of approximately 39 million barrels.
The partnership pays quarterly distributions of $1.0375 per unit, giving the stock an enticing annual yield of 7.8%. Management expects Magellan to generate enough cash to cover its payout 1.24 times this year.
Last month, JPMorgan analyst Jeremy Tonet upgraded Magellan from neutral to overweight. He also raised the price target to $57 — around 8% higher than the current levels.
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