All It Takes Is $2,000 Invested in Each of These 3 Dividend-Paying Energy Stocks to Help Generate Over $300 in Passive Income per Year

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With the major stock market indexes reaching new all-time highs, investors may be questioning the benefit of a few percentage points of dividend yield. However, the value of dividend stocks isn't what they provide during a growth-driven rally in the stock market; rather, it is their distribution of passive income, no matter what the market is doing.

Diamondback Energy (NASDAQ: FANG), Energy Transfer (NYSE: ET), and Equinor (NYSE: EQNR) are three dividend-paying energy stocks that can boost your passive income stream even if the stock market is going down. In fact, you can expect to generate around $314 in passive income per year by investing $2,000 into each stock.

Here's what makes these three stocks particularly compelling buys now.

Image source: Getty Images.

Diamondback has upside exposure to a price of oil of $55 and above

Lee Samaha (Diamondback Energy): The decline in the stock price of the Permian Basin-focused oil and gas company, Diamondback, is in line with the fall in oil prices over the past year. While that's understandable from a sentiment perspective, it may not be logical, and certainly not for dividend-focused investors.

Let's put it this way. Diamondback's management believes its base dividend of $4 a share is protected down to a price of oil of $37 a barrel. In addition, it has hedges in place down to $55 a barrel, meaning it will be able to sell at that price should the price fall below $55 a barrel.

For reference, the $4-per-share base dividend equates to a 2.6% annual yield at the current price. Still, management has the financial flexibility to pay a variable dividend (last year's basic dividend plus the variable dividend totaled $6.21), and it can also buy back more shares, thereby increasing existing shareholders' claim on future cash flows.

Moreover, in cutting its planned capital expenditures in 2025 in response to a weakening oil price, management has already demonstrated its willingness to preserve cash flow. However, ongoing conflict in the Middle East could lead to an oil price increase.

Energy Transfer is a pipeline stalwart that can pipe ample capital into investors' portfolios

Scott Levine (Energy Transfer): Operating about 140,000 miles of pipeline, Energy Transfer is a midstream powerhouse, moving crude oil, natural gas, and other products throughout the United States. In addition, Energy Transfer operates a variety of other energy infrastructure assets, including natural gas processing plants and crude oil terminals.

As a result, the company generates strong free cash flow that suggests its 7.3% forward-yielding dividend is on solid ground.

Smart investors know that high-yield dividends are alluring, but they mean little if strong financials do not back them. With respect to Energy Transfer, however, there's no need to reach for a red flag. Over the past five years, the company has generated ample free cash flow from which it can source its distributions.

ET Dividend Per Share (Annual) data by YCharts.

Plus, Energy Transfer is deploying significant capital -- about $5 billion in 2025 -- to grow its portfolio. The company plans to spend about $1.5 billion to expand its midstream assets in the Permian Basin, including the addition of processing plant capacity with the Arrowhead I and II projects.

Looking ahead, management plans on returning an increasing amount of capital to investors, targeting annual distribution raises of 3% to 5%.

Investors can scoop up this high-yield cash cow at a great value

Daniel Foelber (Equinor): When investors think of large, integrated oil and gas companies, names like ExxonMobil, Chevron, BP, and Shell may come to mind. But Norwegian energy giant Equinor is a hidden gem in the oil patch that looks like an excellent buy for July.

Equinor completed a multi-year effort to return boatloads of cash to investors through outsized buybacks and a massive dividend. It has since scaled back that program to preserve cash, but Equinor still yields 5.9% at the time of this writing. And the buybacks have drastically reduced its share count to the tune of 16% over the last three years.

Buybacks and Equinor's languishing stock price have reduced its valuation. In fact, Equinor is the least expensive U.S./European integrated major in terms of forward price to earnings (P/E).

CVX PE Ratio (Forward) data by YCharts

Forward P/E is the price of a stock divided by analyst projected earnings over the next year. As you can see in the chart, all of the integrated energy majors have attractive valuations -- but the European majors are significantly cheaper than ExxonMobil and Chevron. This makes sense given that ExxonMobil and Chevron have arguably the best overall production portfolios and the clearest path toward future earnings growth.

Equinor was aggressively investing in renewables (namely offshore wind) to diversify its revenue stream and lower its carbon footprint. But the company's strategy has shifted in recent years due to a brutal downturn in the offshore wind industry. The good news is that Equinor has other pathways toward clean energy investments -- such as carbon capture and storage (CCS).

The Norwegian company is a one of the largest CCS operators worldwide, and recent project advancements in Europe (like Northern Lights) and the company's ambitious carbon highway could provide a way to capture carbon dioxide (CO2) from high-emissions industrial areas in the Netherlands and Belgium and then store that CO2 offshore in Norway in the North Sea.

Equinor can afford to fund these climate-focused efforts due to its strong free cash flow from its oil and gas portfolio. All told, Equinor stands out as a balanced buy for investors looking for a high-yield and inexpensive energy stock to buy now.

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Daniel Foelber has positions in Equinor Asa. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends BP and Equinor Asa. The Motley Fool has a disclosure policy.