While the Energy sector can generate great returns when commodity prices go up and profits skyrocket, it is also exposed to heavy selling pressure when realizations crater. In other words, the oil and gas business is inherently cyclical, with delicate supply/demand balances, among others, determining their fortunes.
Amid the specter of magnified gains and losses, investing in high-quality dividend stocks like Canadian Natural Resources (CNQ – Free Report) , Chevron (CVX – Free Report) and Imperial Oil (IMO – Free Report) might fetch you stable, promising returns.
Focus on Dividend Growth Investing to Offset Energy Volatility
From the depths of minus $38 a barrel during the height of the pandemic in April 2020 to a 14-year high surge of above $130 per barrel this March and finally around $90 now, crude has been on a roller-coaster ride over the past few years. It’s not any different for natural gas. The fuel slumped to a 25-year low in June 2020 but recently hit $10 per MMBtu for the first time since 2008. Diverse factors ranging from demand/supply fundamentals to economic events to geopolitical shocks influence commodity price realizations.
As evident from the energy market story, stocks can take a sudden turn for the good (or bad), making stock picking a risky game. Every good stock also has its bad day, which adds to the risk. With uncertainty ruling the markets, it is not surprising that dividend investing has emerged as one of the most popular investing themes.
Dividend stocks are always investors’ preferred choices as they provide steady income and cushion against market risks. These stocks are generally less volatile in nature and hence, are dependable when it comes to long-term investment planning. They not only offer higher income but also protect against equity market risks.
Dividend stocks are safe bets to create wealth, as the payouts generally act as a hedge against economic uncertainty and simultaneously provide downside protection by offering sizable yields on a regular basis. Finally, dividend growth can also help investors to offset some of the value destruction of the high inflationary environment prevailing at the moment.
A Careful Stance Leads to Best Dividend Stocks
Although the benefits of dividend investing cannot be stressed enough, one should keep in mind that not every company can keep up with its dividend-paying momentum. Hence, a …….