Three high-yielding stocks that pay good dividends
All it takes is $1,000 invested in each of these three high-yielding stocks to generate $112 in dividend income in 2025. – The energy sector is a good value compared to most other stock market sectors. – Energy stocks with high yields and strong earnings could be excellent vehicles for driving your passive income in 2025. – There are notable differences between investing in upstream, midstream, and downstream oil and gas stocks. The S&P 500 is only a few percentage points off a record high, has a relatively expensive valuation and comes after several years of massive gains. But many energy stocks have cheap valuations and high yields, making them good buys for value and passive investors. ConocoPhillips (COP), Kinder Morgan (KMI) and Phillips 66 (PSX) all have compelling valuations and have dividend yields of over 3%. Investing $1,000 in each stock should generate about $112 in dividend income in 2025 based on the yield of each stock as of this writing. Here’s why all three dividend stocks are good buys now.
The upstream game
ConocoPhillips is the largest US-based independent exploration and production company by market capitalization. The company’s production has increased dramatically in recent years due to organic investments and two blockbuster acquisitions – Concho Resources and Marathon Oil. ConocoPhillips completed its acquisition of Concho in January 2021, and Marathon Oil was completed on November 22, 2024. So 2025 will be the first full year of earnings after the Marathon acquisition. ConocoPhillips has a sizable and highly efficient production portfolio that allows it to break even at relatively low oil and gas prices. As with Concho, ConocoPhillips expects synergies with Marathon to further reduce production costs. Even including the dividend expense, ConocoPhillips expects to achieve breakeven free cash flow (FCF) in the low $40s per barrel of oil equivalent (boe). Without including the dividend, FCF is break-even in the low $30s per boe. ConocoPhillips already has a solid yield of 3.1 percent. But investors can expect even more passive income going forward, as ConocoPhillips expects its dividend growth to be among the top 25 percent of S&P 500 companies. Oil prices had a mediocre year in 2023. But even in the operating environment, ConocoPhillips continued to rake in the revenue and FCF. The stock has a price-to-earnings ratio of just 12.1 and a price-to-FCF ratio of 12.9 – making it a great value for people who think oil prices will stay around those levels or even lower. By investing $1,000 in ConocoPhillips, you can expect to earn about $31 in passive income in 2025.
The midstream game
Kinder Morgan shares rose by over 50 percent in 2024 – outperforming the major indices and the broader energy sector. The breakout can be attributed to years of underperformance, growing earnings, and a shift in sentiment toward the company’s long-term growth projects. Kinder Morgan operates at the center of the oil and gas value chain. Its energy infrastructure assets, from pipelines to storage to terminals and more, connect areas of hydrocarbon production to areas of processing, distribution and consumption. Kinder Morgan needs to see greater demand for oil and gas production to justify building more infrastructure. Concerns about the role of oil and gas in a cleaner energy future led investors to question the value of Kinder Morgan’s infrastructure and its ability to put capital to work in profitable projects to justify paying a high dividend. But sentiment seems to have changed. Oil and natural gas could play a key role in the energy mix for decades to come, especially if the total amount of energy consumed is expected to accelerate due to economic growth and demand from artificial intelligence (AI) applications. Kinder Morgan has some huge projects coming online in the coming years. It sees an opportunity for even more infrastructure investments due to rising demand for industrial gas, onshore liquefied natural gas exports to Mexico, and demand from AI data centers. Kinder Morgan was beaten up for so long that it is still cheap, even after the run-up. It has a P/E ratio of 24.4, a forward P/E of 22 and a price-to-FCF ratio of 15.7. With a 4.1 percent yield, investors can expect a $1,000 investment in Kinder Morgan to earn about $41 this year.
The downstream game
Phillips 66 operates in the downstream part of oil and gas, and also has a midstream segment. Refining involves taking crude oil and other raw materials and turning them into gasoline, petroleum products, jet fuel and more. Phillips 66 can’t control the price of oil or what buyers will pay for these products, but it can make its operations as efficient as possible to maximize how long its factories run and the margins it makes on refined products. It can also manage costs and the timing of its long-term investments. Yet Phillips 66’s efforts to manage costs have been far outweighed by the decline in the industry. As you can see in the chart, its operating margin peaked in early 2023, followed by a runaway year of rising stock prices that peaked in early 2024, and then had a brutal selloff as margins and profits continued to fall. Phillips 66 and peers Valero Energy and Marathon Petroleum have seen margins and profits plummet. Outside of refining, there is a decline in the materials sector, which is expanding into commodity and specialty chemical companies, petrochemical companies, and more. Despite the lower earnings, Phillips 66 is still an incredibly profitable company. Its dividend stands at $4.60 per share, while trailing 12-month earnings are $7.83 per share. Consensus analyst estimates call for $9.33 in earnings per share in 2025, roughly double the dividend. So Phillips 66’s dividend, with its 4 percent yield, is affordable. Like ConocoPhillips and Kinder Morgan, Phillips 66 is not an expensive stock. It has a P/E of 14.8, a forward P/E of 12.4, and a price-to-FCF of 16.9. A $1,000 investment in Phillips 66 will give you $40 in passive income in 2025.
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