4 Energy Dividend Stocks I Like, 1 I'd Avoid

Energy stocks have been heating up recently due to the prospect of rising oil and gas prices in light of political tensions with Iran and the need for Iran’s largest customers to look elsewhere for their energy needs if an embargo is put in place by the European Union. Energy companies with few to no interests in the Middle East stand to gain the most as the demand for natural resources will still exist in the event that Iran is taken out of the picture and companies with resources elsewhere will be best poised to benefit by filling in the void. Successful energy companies that are able to remain profitable without ties to Iran or the Middle East are of special interest to income investors, who see the opportunity for compoundable returns over many years. Which of the following companies are most likely to provide lucrative dividends through the long term?

ConocoPhillips (NYSE: COP) depends on interests in the United Kingdom, Norway, Canada and the United States and produces just over 900 million barrels of oil and natural gas liquids per day. Its ability to exist without reliance on the Middle East and its growing profits ($11.3 billion in 2010 compared to $4.4 billion in 2009 and $9 billion reported in the first three quarters of 2011) make ConocoPhillips an ideal buy for long term growth. Its quarterly dividend is stable and has paid at $0.66 per share for the past four quarters, giving a yield of about 4% that is consistent and reliable. I think that this is a low risk and stable buy for income investors.

Ecopetrol (NYSE: EC) is a leading integrated oil company located in Colombia that produces over 500,000 barrels of oil per year. The need for alternative energy has contributed to Ecopetrol’s growth and it posted a $4.2 billion profit in 2010 compared to only $2.5 billion the previous year. Its dividend has benefited from its growth as well, as evidenced by the release of two special cash dividends in 2011 in addition to its regular dividend of around $0.54 per share, which gives this stock a yield of just over 4%. I think that Ecopetrol is a clear winner now and in the future due to the growing need for alternative and renewable forms of energy.

Questar Corp (NYSE: STR) is Utah’s largest supplier of natural gas and has shown consistent growth over the past three years, as shown by the gradual rise in its share price from $12 per to just under $20. The company has been quite generous to its shareholders over the past year by paying out at a ratio of 0.80 in its last dividend payout of $0.16 per share, a one cent increase from the previous three quarters. Questar currently provides a yield of 3%, but I believe its steady growth and consistent profitability give it the potential to provide greater returns in the long term.

ECA Marcellus Trust (NYSE: ECT) provides the greatest yield in the group at 11% and its payouts over the last year have been at a ratio of 1.0. The company has exhibited steady growth over the past year that is more evidenced by its rising dividend than by its share price, which has fallen $7 from $29 per share to $22 over the past year. Its dividend has been a different story, however, as it grew from $0.50 per share to $0.63 during the same period. I think this presents investors with the opportunity to take a position at a lower cost now before the stock price rebounds.

Total (NYSE: TOT) has struggled to keep itself in the red over the past three years, making only $261 million in 2009 after $15.4 billion in 2008. It showed a movement in the right direction in 2010 with a profit $317 million, but its dividend over the past four quarters has been shrinking, which suggests rough times ahead for this energy super major. It only released three dividends in 2011, the first of which was $1.36 per share which was followed by a much lower pay out of $0.64 and then $0.62.

Total is finding itself in an increasingly difficult position as one of the super majors due to difficulties in acquiring and exploring new resources. Many of the wells that are large enough to be of interest to a major company rather than small to medium sized energy companies are owned by governments that will not let go of the resources for cheap. Until Total can find a way to continue its growth despite these difficulties, it doesn’t look very valuable to me as a dividend stock and I think that your best bet is to look at the others in this group.

ECA Marcellus trust is the highest yielding dividend in the group, but its value has steadily dropped over the past year. I do believe that in time, it will rebound and prove to be a lucrative investment, but I wouldn’t expect a position here to pay off in the short term. ConocoPhillips and Questar both appear like solid buys to me, but I think that Ecopetrol shows the most potential of the group due to the growing shift we are seeing in the energy market from oil and gas into alternative energy.