Forget Devon Energy, these unstoppable high-yield stocks are better buys

Devon Energy (DVN -0.49%) just agreed to buy Grayson Mill Energy’s Williston Basin business, further expanding its US onshore footprint. Just days after that news, Devon reported that it was already hitting record production levels. If you’re looking for a pure-play power producer, Devon should probably be on your shortlist. But if you’re also looking for dividends, well, you might want to consider these other two energy stocks. Here’s why.

The Devon Energy dividend problem

Devon Energy’s dividend yield is quoted at around 4.4% by online quote services. This is quite an attractive number, considering that S&P 500 the index produces only 1.2% and the average energy stock, using Energy Select Sector SPDR ETF (NYSEMKT:XLE) as an industry proxy, it has a yield of 3.1%. The problem is that the 4.4% yield listed is something of a mirage.

The problem is not the data flow, but Devon’s dividend. Top and bottom results for this pure-play energy producer are inherently driven by volatile oil and natural gas prices. This means that income and earnings can fluctuate wildly at times. Devon decided that the best way to reward investors in good times while protecting its business in bad times was to have a variable dividend policy. In this way, the dividend rises with energy prices, but also falls with them. The bottom line is that you can’t trust the dividend yield figure because, by design, it will change. This won’t sit well with most dividend investors, and especially those trying to live off the income their portfolio generates in retirement.

Chevron is a dividend stock throughout the cycle

Chevron (CVX 0.36%) it also has a dividend yield of about 4.4%, but its dividend has been raised annually for 37 consecutive years. The big difference between this energy giant and Devon is that Chevron’s business is spread upstream (power generation), midstream (pipelines) and downstream (refining and chemicals). This helps cushion the blow from volatile energy prices, as different segments of the energy sector perform differently at different times.

Chevron increases its drag by using leverage sparingly. The debt-to-equity ratio is currently around 0.15 times, which would be low for any company. But that low leverage in good times gives Chevron the freedom to add leverage in bad times, supporting both its business and dividend-paying abilities throughout the energy cycle. To be fair, Chevron probably won’t be as rewarding to hold as energy is on the rise, but for most income-oriented investors, that will be more than offset by the company’s dividend resilience during energy crashes .

Enbridge is a boring and reliable dividend producer

Enbridge (ENB 1.57%) it is even more conservative than Chevron because it comes from the midstream segment of the energy sector. Midstream mostly charges fees to help connect upstream to downstream (and the rest of the world) via vital energy infrastructure assets like pipelines. Thus, energy demand is more important than energy prices. Energy demand tends to remain robust even during industry downturns. This is how Enbridge has increased its annual dividend for 29 consecutive years. The yield is 6.6%, supported by the reliable cash flows generated by its assets.

But Enbridge is not just a midstream company. It also owns regulated natural gas utilities and clean energy assets as it seeks to provide the world with the energy it demands. Or, to put it another way, they are trying to change their business with the world as the world moves to cleaner energy sources. The key, however, is that the company’s clean energy and utility assets are also reliable cash-flow generators. So Enbridge is an attractive, high-yielding energy stock that will give you exposure to the energy sector and more, which could make it the best option for conservative, long-term income investors.

If you want reliable income, look no further than Devon Energy

Devon Energy is not a bad company. And its dividend could actually be an interesting way to hedge against real energy costs (for things like heating and transport). However, it is not a good way to generate a reliable income stream. For that, you’ll be better off with Chevron if you’re looking for oil exposure; or Enbridge, if your primary objective is to maximize earnings over time.