In the world of high-dividend stocks, it's a delicate balance; investors often seek out the allure of an above-average yield, but it's equally important to find a sustainable payout. Investors can sometimes be lured into the mirage of the yield trap, swayed by high dividends that reflect plummeting stock prices instead of operational prowess.  

Dividend growth is typically an offspring of robust earnings growth, reflecting a business's financial health - and while expectations for a recession have been repeatedly delayed this year, adding a few resilient dividend stocks to your portfolio can help shield against future volatility. 

Furthermore, energy stocks are sizzling once again, spurred by shifting demand dynamics and the growing enthusiasm surrounding renewables. With that said, here are a couple of energy sector dividend stocks worth your attention.

Kimbell Royalty Partners

Kimbell Royalty Partners (KRP) focuses on acquiring and maintaining mineral and royalty stakes in oil and gas properties. Though the nature of the business exposes KRP's cash flows to the whims of commodity prices, it has effectively curbed some of this volatility through strategic hedging. More importantly, for those with an appetite for dividends, KRP offers a compelling yield of 10.3%, backed by a robust 123.8% 5-year payout growth. 

That said, KRP's share price action hasn't been quite as compelling. The stock is down 8.7% year-to-date, underperforming the broader S&P 500 Energy Sector SPDR (XLE), which has edged up 1.1% in 2023. This soft price action is likely due to KRP's exposure to natural gas (NGU23); while oil futures (CLU24) have managed to claw their way 0.4% higher this calendar year, natural gas prices are down 40.5% since the start of 2023.

Amid these technical headwinds, there's a silver lining for KRP investors. The company delivered an earnings beat in its second quarter, highlighted by tactical shifts in production away from natural gas. Oil now accounts for 33% of its production mix, a notable jump from 29% in the preceding quarter. This strategic pivot should cushion KRP from additional weakness in natural gas prices. 

KRP's second-quarter results blew past forecasts by 11 cents to 23 cents per share, continuing a trend of positive earnings surprises for the commodity firm. Also, its second-quarter results were complemented by an all-time high daily production run rate of 17,573 barrels of oil equivalent (Boe) per day. Moreover, shareholders scored a 39-cent cash distribution per common stock for the quarter. 

The firm ended the second quarter with a net debt to trailing twelve-month consolidated adjusted EBITDA ratio of just 1.1 times, with its operational cash flows surging by 67%. 

Furthermore, Scott Hanold, an analyst at RBC Capital, recently took the helm on coverage for Kimbell Royalty Partners, assigning an encouraging “Outperform” rating on the stock. Bullish ratings are the norm for the stock; out of the four analysts in coverage, all of them rate KRP the equivalent of a “Strong Buy.”

Wall Street expects KRP to break out of its slump on the charts, too. The average 12-month price target is $20.50, implying expected upside of more than 34% from current levels.

Plains All American Pipeline

Plains All American Pipeline (PAA) is a midstream operator focusing on liquids. It generates a whopping 80% of its EBITDA from its crude oil segment, with the Permian Basin alone contributing roughly 60% to this segment's EBITDA. Moreover, it rakes in cash through tariffs, capacity agreements, and other transport fees. More importantly for its shareholders, its dividend yield stands at 6.98%.

PAA stock is up 29% year-to-date - an impressive feat, considering the broader XLE is just barely above flat for the calendar year. 

PAA benefits from its ties to the country's premier oil basin and low capital expenditures, resulting in a gusher of free cash flows. Free cash flows shot up by a robust 119.6% in its most recent quarter on a sequential basis. 

Looking deeper into the report, the company earned 25 cents per share, which beat the estimate of 21 cents per share, resulting in a notable 19% earnings surprise. Adjusted EBITDA in the crude oil segment rose 7% year-over-year on the back of a 13% increase in pipeline volumes, clocking in at 8.4M million barrels per day. Additionally, PAA said it now expects full-year adjusted EBITDA to arrive near the high end of its previously provided guidance between $2.45 billion to $2.55 billion.

On top of that, PAA stock is a hit with the analysts. The consensus rating among 15 analysts is a “Strong Buy,” with the average 12-month price target of $16.93 implying expected upside of 11.5% from current levels.

Takeaway

Despite the company's challenges with declining natural gas prices, Kimbell Royalty Partners offers promising returns, marked by strategic shifts in production and a solid earnings surprise in its most recent quarter. Meanwhile, Plains All American Pipeline continues to tap into the strengths of the top U.S. oil basin as it showcases significant growth. Strong earnings surprises and positive analyst ratings back both companies' recent performance, making these potentially overlooked dividend stocks worth adding to your portfolio.