Oil prices fell. Here are 3 energy stocks that can thrive no matter where prices go.

Oil prices have been on a downward trajectory since peaking in April. WTI, the main indicator of US oil prices, has fallen from more than $85 a barrel to a recent level of around $70. This decline will have different impacts in the oil zone.

Chevron (NYSE: CVX), Plains All American Pipeline (NASDAQ: PAA)and Enterprise product partners (NYSE: EPD) note some Fool.com contributors for their more resilient businesses. Here’s why these energy stocks should thrive regardless of what happens to crude oil prices.

Chevron is solid as a rock

Reuben Gregg Brewer (chevron): Chevron is well aware of the volatile nature of energy prices and what wide swings in oil and natural gas can do to its bottom line. That’s why he pays so much attention to his balance sheet. And you should too.

To start with a number, Chevron’s debt-to-equity ratio is a very low 0.15. This is the lowest leverage among the company’s closest peers (and would actually be low for any company in any industry). This is no small detail given the cyclical nature of the industry. Simply put, low leverage gives Chevron the means to thrive in any oil market.

That’s because Chevron has room to add leverage when oil prices are weak, which allows the company to continue investing in its businesses and paying its dividends. The benchmark dividend has grown for 37 consecutive years, an incredible feat considering the industry in which Chevron operates.

When oil prices recover, as they always have, Chevron reduces its leverage to prepare for the next downturn. Conservative income investors looking for an all-weather energy stock will be hard-pressed to find a better option than Chevron, which yields 4.5%.

A well oiled revenue generating machine

Matt DiLallo (Plains All American Pipeline): Plains All American Pipeline operates an extensive network of petroleum pipelines, storage terminals and natural gas liquids (NGL) infrastructure. The main limited partnership (MLP) primarily receives fees as crude oil and NGLs flow through its critical and integrated networks. Because of this, falling oil prices have minimal impact on its cash flows.

This year, the midstream company expects to generate more than $2.7 billion in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). It recently raised the midpoint of its guidance range by $75 million due to strong first-half results and the outlook for balance of the year. This updated outlook “underscores the resilience of our business model and highlights the flexibility of our asset base to capture opportunities in a dynamic and evolving market,” CEO Willie Chiang said in the second-quarter earnings report.

The story continues

Plains All American Pipeline expects to generate approximately $1.6 billion in adjusted free cash flow this year after financing growth capital projects (approximately $375 million). It will distribute nearly $1.2 billion of that cash to investors (MLP distribution currently yields over 7%). The remaining cash will help finance consolidated acquisitions, further debt reduction or other investment opportunities. The company’s expansion-related investments should increase its earnings and cash flow.

The MLP’s ability to generate stable and growing cash flow leads to its belief that it can consistently increase its cash distributions. It aims to increase its payout by $0.15 per unit annually after 2024 (a double-digit rate from current levels). That’s after it gave investors a 23% raise earlier this year. With Plains All American’s stable cash flow, strong balance sheet and well-covered payout, investors can count on this income stream even if oil prices continue to decline.

A wise approach

Neha Chamaria (Enterprise Product Partners): No oil stock is completely immune to oil price volatility. However, some companies can not only generate stable earnings and cash flow during a turbulent oil market, but also pay regular dividends to their shareholders regardless of where oil prices are headed.

Enterprise Products Partners, for example, has increased its dividend every year for 26 consecutive years. That period includes some of the toughest years for the oil market in history, including 2020, when oil prices fell into the negative, even forcing some oil companies to cut their dividends.

While Enterprise Products’ business model helps tremendously, the company proactively adjusts its capital expenditures in response to market conditions to keep cash where it’s needed. So, on the one hand, the oil and gas pipeline giant generates steady cash flow through long-term contracts. On the other hand, it uses cash in such a way that it can continue to pay higher dividends each year while balancing debt management and growth expenses.

Enterprise Products Partners’ strategy has worked well so far, as evidenced by its dividend growth, which has contributed enormously to shareholder returns over the decades.

Enterprise Products Partners is one of the largest midstream energy companies in the US, maintains a strong balance sheet, has nearly $6.7 billion of projects under construction and is committed to returning shareholder value at all times. So no matter where oil prices go, this 7.2% yielding energy stock can thrive.

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Matt DiLallo has positions in Chevron and Enterprise Products Partners. Neha Chamaria has no position in any of the shares mentioned. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

Oil prices fell. Here are 3 energy stocks that can thrive no matter where prices go. was originally published by The Motley Fool