2 No-Brainer High-Yield Energy Stocks to Buy Right Now

High-yield stocks have to be treated with caution. If you just buy the highest-yielding investments you can find, you are likely to be let down. The key is to find a balance between risk and reward, which is what you'll achieve by investing in Enterprise Products Partners (NYSE: EPD) and Enbridge (NYSE: ENB). Here's why these are no-brainer high-yield energy stocks today.

The energy sector is vital and volatile

The modern world can't function without energy, which is why most investors should have some exposure to the energy sector in their portfolios. However, the energy sector also tends to be highly volatile, due to the fluctuating prices of energy commodities such as oil and natural gas. This top-level view, however, doesn't tell the whole story.

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The energy sector is generally broken down into three parts: the upstream, the midstream, and the downstream. The upstream is where oil and natural gas are produced. The downstream is where oil and natural gas are processed into usable products. Both are commodity-driven and volatile. The midstream, by contrast, is a toll-taker business that connects the upstream to the downstream and the rest of the world. The volume flowing through a company's pipelines and other energy infrastructure is what's most important in the midstream, not the price of the commodities being used.

Even during deep energy market downturns, demand for oil and natural gas tends to remain robust. This is why even conservative dividend investors can be comfortable investing in the midstream if they are looking to add some energy exposure to their portfolios. However, not all midstream businesses are equally reliable, and examining yield alone is insufficient to determine whether an investment is worth owning.

Buy Enterprise and Enbridge

If all you did was look at yield, you might buy a midstream player like Energy Transfer (NYSE: ET). Its 7.9% yield is far higher than the 6.7% yield you'd collect from Enterprise Products Partners or the 5.7% dividend yield on offer from Enbridge. In fact, Energy Transfer's business isn't a bad one, but its history as an income stock is lacking. In 2020, the distribution was halved.

In fairness, 2020's cut occurred during the midst of the coronavirus pandemic. It was a highly uncertain time for the world and for energy markets. The decision helped to solidify the balance sheet and set Energy Transfer up well to survive both that period and future periods of uncertainty. However, it also set a precedent that investors looking to live off the income their portfolios generate shouldn't ignore. Enterprise and Enbridge both increased their shareholder payments in 2020.

Enterprise has now increased its distribution for 27 consecutive years. Enbridge's streak is up to 30 years. What you are giving up in yield, you are making up for in proven consistency. For most long-term dividend investors, that will be a worthwhile trade-off.

Enterprise is particularly attractive today because it has been increasingly focusing on natural gas. Natural gas is expected to serve as a transitional fuel as the world moves toward cleaner energy alternatives, such as renewable power. Add in an investment-grade rated balance sheet and the fact that distributable cash flow covers the distribution by a comfortable 1.7x, and even the most conservative of dividend investors will find it attractive.

Despite having a lower yield, Enbridge could gain an edge over Enterprise for some investors. That's because Enbridge's portfolio includes oil pipelines, natural gas pipelines, regulated natural gas utilities, and clean energy investments. The regulated natural gas utilities it owns have fairly consistent growth prospects, while the clean energy investments show it is already changing its business along with the world's energy needs. The diversification outside of the energy sector could make this Canadian midstream giant the right choice for ultra-conservative dividend lovers.

Look past the yield when looking at energy stocks

Investors seeking yield might find Energy Transfer attractive, but there are trust issues that more conservative investors shouldn't ignore. The yield alone won't explain why those concerns are important, but a quick look at the history of the business (notably that 2020 distribution cut) will.

A more attractive risk-reward ratio awaits dividend investors who take a closer look at their income options. That's when lower-yielding, but more reliable investment options, such as Enterprise and Enbridge, start to jump out. If you are focused on energy, Enterprise will probably be the better choice for you. If you're looking for a clean energy hedge, Enbridge should probably be your choice.

Reuben Gregg Brewer has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.