The energy markets are in a state of upheaval, a situation that’s unlikely to reverse until there’s some sort of a conclusion to the war in Ukraine, or at least until Europe has more energy. This is unlikely to happen any time soon, despite the nuclear fuel that everybody seems to be buying from Russia because it’s not under sanction, and despite the fact that fears of a global recession are beating down oil prices. 

In the Winter Fuels Outlook released in October 2022, the EIA said, “Compared with last winter, in nominal terms, we forecast expenditures for homes that heat with natural gas will rise by 28%, heating oil by 27%, electricity by 10%, and propane 5% from October–March.” Colder temperatures and higher fuel costs will contribute to this (It expects the Brent to average $93 per barrel in the fourth quarter of 2022 and $95 per barrel in 2023).

U.S. gasoline consumption in 2022 will decline 40,000 b/d from 2021 and stay near that level in 2023, as rising fuel efficiency offsets transportation demand.

The EIA maintains that natural gas inventories will end the April-October injection season 6% below the 2017-2021 average.

Demand is therefore expected to remain quite high and supply relatively limited, which is what we are also hearing from the street, as the U.S. remains capacity constrained at refiners while new investment remains low as greener fuels weaken the long-term outlook. 

While practically the entire sector is worth buying today, the refiners are the ones seeing a lot of growth and margin expansion, which also means that they’re not necessarily the best income generators. But if you look further, you could find stocks with strong growth prospects that are also paying a handsome dividend:

Devon Energy (DVN Quick QuoteDVN - Free Report)

The U.S.-based E&P company is seeing solid growth in revenue and profits. This year alone, it’s expected to grow revenue 67% and earnings 152%. 2023 growth rates are slower at a respective 2% and 9%. Estimates for this company have been coming down, but things could change after it reports on Oct 31.

Especially because the Zacks model shows that a buy-ranked stock with a positive earnings ESP (expected surprise prediction) usually does better than expected. In this case, we have a #2 (Buy) ranked stock with an ESP of 0.29%. So let’s see what it does.

In the meantime, it’s worth pointing out that Devon pays a very nice dividend that yields 8.35%.

The shares also trade at a discount to their median level over the past year in terms of price to earnings (P/E). So they’re cheap.

Kimbell Royalty LP (KRP Quick QuoteKRP - Free Report)

Kimbell Royalty Partners, which owns and acquires mineral and royalty interests in oil and natural gas properties is expected to grow revenue and earnings by a respective 93% and 155% in 2022. Revenues are currently expected to decline around 3% next year although earnings will still expand 25%.

The 2022 estimate is down a penny in the last 30 days, but this is still much higher than 60 days ago. The 2023 estimate remains unchanged. Therefore, it should be considered as more of a fine-tuning than an actual downward revision.

The fact that the ESP is a positive 20.64% is additional evidence that the revisions trend is not negative. The ESP captures the difference between the most recent estimate and the average estimate, going by the logic that the latest estimate is more accurate, having considered the most recent factors affecting the company. When coupled with Kimbell Royalty’s #2 rank, we also know that the stock has a fair chance of beating estimates when it reports on Nov 3.

In addition, the company pays a dividend that yields 11.77%.

The shares also trade at a 40% discount to their median levels over the past year. So they’re definitely worth jumping into.

The Williams Companies, Inc. (WMB Quick QuoteWMB - Free Report)

A premier energy infrastructure provider in North America, The Williams Companies is expected to grow its revenue by around 1% this year and another 5% in the next. Its earnings are however expected to grow 15% and 14%, respectively. Estimates are moving higher on this company, both for 2022 and 2023. Since it doesn’t report until Oct 31, we’ll have to see if the positive revisions trend continues.

It is however encouraging to note that the ESP for WMB is 1.53%, which along with its Zacks #1 (Strong Buy) rank, is indicative of a positive earnings surprise.

Its dividend yields 5.39%.

At 17.8X P/E, the shares also trade at a 22% discount to their median level over the past year, which makes them relatively cheap.

Alliance Resource Partners (ARLP Quick QuoteARLP - Free Report)

Zacks #2 ranked Alliance Resource Partners is a diversified producer and marketer of coal to major U.S. utilities and industrial users.

The oil crunch has increased demand for all kinds of energy, from the cleanest to the dirtiest, which is why there is increased demand for coal. Allied Recourse is a beneficiary of these trends, with expected 2022 revenue and earnings growth of 53% and 227%, respectively. In the following year, revenue is expected to grow 7% and earnings 25%. There are no estimate revisions in the last 60 days but notable improvements in the last 60 days.  

The #2 rank and 0 ESP are also indicative of a positive surprise when Alliance Resource reports on Oct 31.

Its dividend yields 7.03%.

Valuation is also cheap.

One-Month Price Performance

Image Source: Zacks Investment Research