These 2 Energy Stocks Yield Over 8% — And Wall Street Sees Major Upside Ahead

With volatile commodity prices, energy stocks can see wild swings from time to time. But investors don't necessarily have to actively trade stocks to make money in the sector. They can also collect dividends.

With the right dividend stocks, investors can bypass the stress and uncertainty associated with attempting to time the market, all while benefiting from a passive income stream.

Business magnate John D. Rockefeller once said, "Do you know the only thing that gives me pleasure? It's to see my dividends coming in."

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But most companies don't pay much these days. The average dividend yield of S&P 500 companies is now just 1.6%.

Still, some companies offer a far more generous yield. Here's a look at two energy stocks Wall Street analysts find especially appealing — both boasting yields of over 8%.

Hess Midstream LP HESM

Hess Midstream owns, operates and develops a diverse set of midstream assets to provide services to Hess Corp. HES and third-party customers. Its oil, gas and produced water handling assets are primarily located in the Bakken and Three Forks Shale plays in the Williston Basin area of North Dakota.

Hess Midstream's business is backed by fee-based contracts that help minimize commodity price exposure.

For the second quarter of 2023, the company paid a quarterly cash distribution of 60.11 cents per share, which represented a 2.7% increase from its first-quarter distribution. At the current share price, the latest payout translates to an annual yield of 8.1%.

In the second-quarter earnings report, the company revealed that it generated $202.6 million of distributable cash flow (DCF), which covered its payout for the quarter approximately 1.4 times.

Going forward, management is targeting at least 5% annual distribution growth through 2025 while maintaining an annual distribution coverage of at least 1.4 times.

Goldman Sachs analyst John Mackay has a Buy rating on Hess Midstream and a price target of $32, implying a potential upside of 8%.

Energy Transfer LP ET

Energy Transfer owns one of the largest portfolios of energy assets in the U.S.

With approximately 125,000 miles of pipelines and associated energy infrastructure, the partnership has a strategic network that spans 41 states and all of the major production basins in the country.

In July, Energy Transfer announced a quarterly cash distribution of 31 cents per unit. At the current unit price, the amount comes out to an annual yield of 8.9%.

In the second quarter, Energy Transfer's distributable cash flow attributable to its partners totaled $1.55 billion. In the earnings conference call, Energy Transfer Co-CEO Tom Long pointed out that the amount "resulted in excess cash flow after distributions of $579 million."

The stock has climbed 19% in 2023, and Morgan Stanley analyst Robert Kad sees further upside on the horizon. The analyst has an Overweight rating on Energy Transfer and a price target of $17 — roughly 23% above where the stock currently sits.

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