Energy Transfer, Williams Companies, Diamondback Energy Top Analyst Picks for Stable Dividends
2min read Top-tier analysts on Wall Street have identified several energy stocks that are well-positioned to weather short-term challenges and provide stable cash flows, making them attractive options for investors concerned about potential economic downturns and trade policy uncertainties. These companies are known for their ability to sustain significant dividend payouts, which can help stabilize investment portfolios during turbulent market conditions.
One of the top picks is Energy Transfer, a midstream energy company with a diversified portfolio of energy assets in the United States. The company boasts over 130,000 miles of pipelines and related energy infrastructure. In February, Energy Transfer paid a quarterly cash dividend of $0.3250 per share, marking a 3.2% year-over-year increase. The stock offers a dividend yield of 7.5%. The company is scheduled to release its first-quarter earnings on May 6. Analysts, including Elvira Scotto from RBC Capital Markets, have highlighted Energy Transfer as a strong performer in the midstream sector. Scotto noted that recent pullbacks in midstream stocks covered by RBC Capital Markets appear to be overdone, given the highly contracted and fee-based nature of midstream businesses. She also pointed out that Energy Transfer's comments on the Waha differential could be a key driver, along with potential advancements in data center/artificial intelligence-driven projects. Scotto's optimism is based on Energy Transfer's diversified cash flow sources, including significant fee-based cash flows. She expects the company's cash flow growth, combined with a robust balance sheet, to enhance cash returns to unit holders. Scotto maintains a buy rating on Energy Transfer's stock, with a slightly reduced target price of $22 due to market uncertainties.
Another midstream energy company favored by analysts is The Williams Companies. The company is set to report its first-quarter earnings on May 5. Recently, Williams Companies increased its annualized dividend by 5.3% to $2.00, resulting in a dividend yield of 3.4%. Scotto identified several potential drivers for Williams Companies' stock, including long-term growth opportunities in artificial intelligence/data centers, activity in the dry gas basin, performance of the marketing segment, and the timing of growth projects coming online. Scotto believes that investors are currently favoring Williams Companies' gas-focused business due to its lower sensitivity to economic downturns compared to oil demand. She expects strong business volumes across Williams Companies' segments, although the Northeast segment may face some headwinds. Scotto maintains a buy rating on Williams Companies' stock, with a target price of $63. She anticipates that the company will successfully advance its backlog of growth projects and strengthen its balance sheet, maintaining its investment-grade credit metrics and dividend payouts over the long term.
Diamondback Energy, focused on onshore oil and natural gas reserves in the Permian Basin, is another energy stock recommended by analysts. In February, the company announced an 11% increase in its annual basic dividend to $4.00 per share, resulting in a dividend yield of 4.5%. Prior to the company's first-quarter earnings release in early May, Morgan Stanley analyst Arun Jayaram reiterated a buy rating on Diamondback Energy's stock, slightly lowering the target price to $166. Jayaram expects the company's first-quarter performance to meet Wall Street's expectations, with a projected cash flow per share (CFPS) of $8.12, slightly above the consensus estimate of $8.10. Despite commodity price volatility, Jayaram anticipates no changes to Diamondback Energy's maintenance capital plan in the near term, with operations continuing as planned following the acquisition of the Double Eagle project. Jayaram also noted positive well production efficiency trends for Diamondback Energy's 2024 projects, which will provide additional capital efficiency. The company is expected to generate approximately $1.4 billion in free cash flow, including a quarterly dividend of $0.90 per share and $437 million in stock repurchases. Jayaram highlighted Diamondback Energy's leadership in capital efficiency among exploration and production companies, with one of the lowest free cash flow breakeven points in the industry.
