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Over the past decades, oil has become an essential part of our daily energy portfolio. While recent technological improvements lead the way to alternative energy sources, oil still remains as the most essential source of energy. Most companies operating in this field return their earnings back to their shareholders through nifty dividends. Compared to paltry yield of government bonds, dividends offered by these companies provide a substantial source of income. Now the Brent oil prices are hovering around $110, oil stocks are likely to move higher thanks to increasing demand.

Investing in oil stocks is one of the best ways to hedge against rising fuel costs. While the increasing gasoline prices are not good for consumers, it will benefit those who invested in energy stocks. Therefore, I screened for the top mid-cap oil and gas companies with dividend yields of at least 4%. All of the companies in this list enjoyed a minimum 5-year EPS growth rate of 10%. All of these stocks are trading within my maximum forward P/E ratio safety criteria of 25. Among hundreds of mid-cap stocks, only the following five stocks fit into the above criteria.

El Paso Pipeline Partners, L.P (NYSE:EPB)

  • Trailing Yield: 5.91%

  • Payout Ratio Based on Cash Flow (Yield/Cash Flow) = 71%

  • Forward Yield: 6.41%

El Paso is among my favorite oil and natural gas transporters. The company has been paying substantial dividends since its formation. In the last five years, the dividends were boosted almost four-fold from $0.13 in 2008 to $0.44 in 2010.

El Paso also holds a 58% general partner interest in Colorado Interstate and 25% share in Southern Natural Gas. This year, Kinder Morgan (NYSE:KMP) made a bold move to acquire El Paso Pipelines. The acquisition has not been properly implemented yet, but I expect the joint entity to keep paying substantial dividends. El Paso is likely to benefit from cost savings, and it might even receive some of Kinder Morgan's assets. Barclays suggests an equal weight rating with a target price of $39.

Magellan Midstream Partners (NYSE:MMP)

  • Trailing Yield: 4.16%

  • Payout Ratio Based on Cash Flow (Yield/Cash Flow) = 70.7%

  • Forward Yield: 4.52%

Similar to other stocks in this list, Magellan operates as a midstream partnership. Its extensive pipeline network runs from Gulf of Mexico all the way up to Illinois. The company has an attractive asset base which offers stable cash flows. Most of its contracts are fee-based. Thus, as the demand for energy grows, the customer base is also likely to keep growing. Wunderlich has a hold rating on the stock. I also agree with Wunderlich. While Magellan still looks like an attractive company, I would rather wait for a pullback after the stock's recent run.

Sunoco Logistics Partners (NYSE:SXL)

  • Trailing Yield: 3.77%

  • Payout Ratio Based on Cash Flow (Yield/Cash Flow) = 26%

  • Forward Yield: 4.26%

Sunoco owns, operates and acquires a diversified portfolio of pipeline, terminal, and crude oil acquisition and marketing assets. P/CF ratio of 7 is among the lowest in the sector. The company has a beta value of 0.24. For a value investor, such low beta means safe yet high returns.

Over the last 5 years, the company was able boost its dividends from $1.1 in 2006 to $1.61 in 2011. The forward dividend yield of 4.26% suggests that Sunoco is a staunch dividend investment. UBS has a neutral rating on the stock. I think Sunoco is a great stock to buy on market weaknesses.

Targa Resources Partners (NYSE:NGLS)

  • Trailing Yield: 6.21%

  • Payout Ratio Based on Cash Flow (Yield/Cash Flow) = 41.6%

  • Forward Yield: 6.50%

Targa Resources is a natural gas liquid transporter. The company mostly operates in the downstream natural gas liquids business. It also has a few refined products terminals. With a yield of above 6%, Targa deserves a second look for income-oriented investors. While its P/E ratio of 22.6 looks a bit high compared to the rest of its peers, Targa is trading at a discounted P/CF ratio of only 6.7.

Targa's shareholders received substantial dividends. The company was able boost its distributions almost three-fold in the last three years. In 2007, the annual dividend amount was only 84 cents. The current dividend of $2.25 is three times the amount paid in 2007. Management has a policy of incremental dividend increases. Thanks to this policy, dividends increased two times in this year alone. Robert W. Baird has an outperform rating on the stock.

Access Midstream Partners (NYSE:ACMP)

  • Trailing Yield: 4.98%

  • Payout Ratio Based on Cash Flow (Yield/Cash Flow) = 37.5%

  • Forward Yield: 5.25%

The last mid-cap stock on this list is Access Midstream Partners. Similar to most other master limited partnerships, it owns, operates, develops, and acquires natural gas gathering systems and other midstream energy assets in the United States. The Oklahoma-headquartered Access offers a trailing yield of almost 5%, which is supported by a relatively safe cash-flow yield of 37.5%. The stock is a relatively new player in the dividend investment space. It started paying dividends since 2010. However, so far, it has a record of growing distributions at each quarter. The current quarterly dividend of 42 cents per share is twice that amount paid in the last quarter of 2010.

Source: 5 Mid-Cap Energy Stocks To Consider For Nifty Dividends