The energy rally has been nothing short of impressive, with the sector ($SREN) surging over 12% year-to-date, leaving the broader S&P 500 Index's ($SPX) 5% gain in the dust. Fueling this momentum? Rising oil prices and robust demand forecasts, as evidenced by the Energy Information Administration's (EIA) recent upward revision to oil price (CLK24) forecasts for 2024. 

Against this favorable backdrop, three dividend-paying energy stocks have emerged as standouts - not just outperforming the S&P 500 on a YTD basis, but ranking among the index's top 20 performers of 2024 through mid-April. NRG Energy Inc. (NRG), Marathon Petroleum Corp. (MPC), and Valero Energy Corp. (VLO) have all garnered consensus “buy” ratings from analysts - and while these surprise outperformers might be flexing on their mean price targets from Wall Street, their low valuations suggest plenty of room for multiple expansion from here.

With analysts raising their crude oil price and demand forecasts, here's a closer look at these value-priced dividend stocks.

Energy Dividend Stock #1: NRG Energy

NRG Energy Inc. (NRG) is a leading integrated power company that produces and supplies energy, operating across retail electricity, renewable generation, and conventional assets. 

The company also rewards shareholders with a consistent dividend policy, with a current quarterly payout of $0.41 per share. NRG's annual dividend yield currently stands at an attractive 2.2%, with the payout ratio of 30% indicating a sustainable distribution policy.

Over the past year, NRG Energy's stock has exhibited remarkable strength, more than doubling in value over this time frame. On a YTD basis, the stock is up 36.4%, easily besting the broader S&P's 5% gain.

However, NRG still looks reasonably valued here. The stock trades at 11.5x forward earnings and 0.52x forward sales, which is a significant discount to the utilities sector median.

In Q4 of 2023, NRG reported earnings of $1.14 per share, surpassing the consensus estimate by 21.3%, though total revenues of $6.81 billion declined 13.4% year-over-year and missed expectations. NRG reaffirmed its 2024 guidance for adjusted EBITDA of $3.3 to $3.55 billion, and free cash flow before growth between $1.83 and $2.1 billion.

On the strategic front, NRG is seeking $900 million in loans from Texas to finance new natural gas-fired power plants, aligning with the state's grid fortification efforts and supporting renewable energy with reliable backup sources. The company's 2024 capital allocation plan includes $500 million in debt reduction, $825 million for share buybacks, and an 8% hike in the annual common dividend.

Analysts are generally bullish, with a “moderate buy” consensus from the 8 analysts in coverage, including 4 “strong buys” and 4 “holds.” 

Following its breakout performance on the charts, NRG is trading above its mean target price of $66.38. The Street-high price target of $88 is about 24.8% overhead.

Energy Dividend Stock #2: Marathon Petroleum

Marathon Petroleum Corp (MPC), a refining powerhouse, has a massive downstream footprint with its extensive network of refineries and retail stations. 

And MPC delivers value back to shareholders via a robust dividend policy, currently offering a quarterly payment of $0.83 per share. That payout reflects a 1.63% yield, with a very sustainable 13% payout ratio suggesting the dividends are well covered by earnings.

Beyond those dividend payouts, MPC's stock has been on a tear, surging 51% over the past 52 weeks. That includes an SPX-crushing 31.5% year-to-date climb. 

With a forward P/E of 11.1, MPC is still priced at a steep discount to its own historical averages - and the forward price/sales ratio of 0.52 is quite a bit cheaper than the energy sector median, too.

Financially, MPC is firing on all cylinders. In Q4 2023, the company reported adjusted EPS of $3.98, which broadly beat Wall Street's forecast. Revenues followed suit, with the Q4 total of $36.82 billion topping estimates. For the full year, the company generated $14.1 billion in net cash from operations. 

On the sustainability front, MPC is making moves, transitioning its Vinvale and East Hynes fleets in LA to renewable diesel – a strategic play that not only reduces its carbon footprint, but also aligns with broader environmental goals and consumer preferences for cleaner energy solutions.

The analyst sentiment toward MPC is overwhelmingly positive, with a “strong buy” consensus. Specifically, 11 analysts are shouting "strong buy," 1 is recommending a “moderate buy,” and 4 are suggesting a “hold.” 

The stock is trading above its $193.50 mean target price, but MPC has about 16.4% upside potential to its Street-high price target of $227.

Energy Dividend Stock #3: Valero Energy

Valero Energy Corporation (VLO) is an international player in the transportation fuels and petrochemicals game, with a knack for refining crude oil into premium products like gasoline, diesel, jet fuel, and asphalts. But they're not just resting on their fossil fuel credentials; VLO has also expanded its footprint into the renewable fuels sector, with a bustling ethanol business.

And when it comes to rewarding shareholders, Valero knows how to deliver. The company recently hiked its quarterly cash dividend to $1.07 per share, a 5% increase that underscores its financial health. With an annual dividend yield of 2.56% and a payout ratio of 16% - allowing ample room for future growth - Valero is a compelling choice for income-focused investors.

Now, let's talk stock performance. VLO stock has gained nearly 28% in the last 52 weeks, fueled in large part by a 25% YTD rally. But priced at a modest 9.75x forward earnings and 0.41x sales, VLO might just be an undervalued gem here.

Valero reported net income of $1.2 billion for Q4 2023, or $3.55 per share - beating Wall Street's forecast. Revenue also came in stronger than expected, at $35.41 billion, and Valero ended the year with a cash balance of over $5 billion.

Management is also making moves on the sustainability front. Their partnership with Summit Carbon Solutions on a carbon capture and storage project aims to transport a whopping 18.5 million metric tons of CO2 annually, positioning VLO at the forefront of the transition to renewable fuels.

The analyst sentiment is predominantly positive, with a “moderate buy” consensus. Out of 16 analysts in coverage, 12 are shouting "strong buy," 3 suggest a “hold,” and 1 says “strong sell."

Valero has room to run less than 5% before meeting its average price target of $169.47, but its Street-high target of $198 is a premium of 21.8% to Thursday's close.

The Bottom Line on Energy Dividend Stocks

NRG Energy, Marathon Petroleum, and Valero Energy might be leading the S&P 500, but they still look reasonably valued at current levels. As the energy sector rides a wave of strong demand, it's clear these dividend stocks are the real powerhouses - not just for passive income, but for potential growth, too. 

On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.