The energy sector has historically offered above-average dividend yields, making it ideal for those looking to earn passive income. While the oil and gas industry is volatile, leading to wild swings in dividend payments in this sector, other parts of the energy sector generate much more stable cash flows. This allows companies in these segments to pay a more sustainable dividend.
Three energy stocks that offer high-yielding dividends that they should have no problem sustaining over the long term are Brookfield Power (NYSE: BEPC)(NYSE: BEEP), Enbridge (NYSE: ENB)and Consolidated Edison (NYSE:ED). This makes them ideal options for those looking to earn passive income.
Strong future dividend growth
Brookfield Renewable operates a diverse network globally renewable energy Platform. It generates stable cash flows by selling the electricity it generates to utilities and large corporate buyers under long-term, fixed-rate power purchase agreements. These contracts provide Brookfield with stable cash flow to support its dividend. The company currently offers a dividend yield of 3.4%, more than double the 1.6% yield of a S&P500 index fund.
This high-yield payout is built on a very durable foundation. Brookfield has a reasonable dividend payout ratio, which allows it to conserve cash to grow its business. Meanwhile, the company has a strong investment-grade balance sheet, providing additional financial flexibility.
Brookfield expects cash flow to grow 6% to 11% per share through at least 2026, driven by rising power prices and its large portfolio of renewable energy development projects . Meanwhile, he sees acquisitions add up to an additional 9% to his bottom line each year. This outlook easily supports Brookfield’s view that it can increase its high-yield dividend by 5% to 9% per year. This would continue the company’s trend of increasing its annual dividends, which reached the 11th consecutive year in 2022.
The fuel to keep growing
Enbridge operates an extensive oil and gas network pipeline network in North America, one of Canada’s largest natural gas utilities and a renewable energy company. These activities generate stable cash flows supported by long-term contracts and government-regulated rate structures. This helps support Enbridge’s dividend, which currently yields nearly 6%.
This important payment is on solid ground. Enbridge has a fairly conservative dividend payout ratio and an investment grade credit rating. This gives the company billions of dollars of annual investment capacity to continue to expand its operations.
Enbridge estimates it can grow its cash flow per share by a compound annual rate of 5-7% through at least 2024. This should allow the company to continue to increase its dividend and extend a growth streak that currently spans 27 consecutive years.
This elite track record shows no signs of stopping
Consolidated Edison is a utility which distributes electricity and natural gas in the New York metropolitan area. It also has a large-scale renewable energy business and investments in gas pipelines and power transmission lines. These businesses are all producing stable cash flow to support the company’s dividend, which currently pays 3.3%.
The public service dividend rests on solid foundations. It maintains a targeted dividend payout ratio of 60% to 70% of its adjusted earnings, a healthy level for a utility. Meanwhile, it has a solid investment-grade track record. These features give Consolidated Edison the financial flexibility to continue expanding its operations.
Consolidated Edison plans to invest $15.7 billion in a combination of green power, security and reliability investments through 2024. These investments should allow the utility to continue growing profits. This should give him the power to continue to increase the dividend. Consolidated Edison achieved its 48th consecutive year of dividend increases in 2022, the longest stretch of consecutive annual dividend increases of any S&P 500 utility.
Great ways to boost your passive income
Brookfield Renewable, Enbridge and Consolidated Edison offer investors high yield dividends. They also have a great track record of consistently increasing these payments. With more likely growth going forward, these high-yielding energy stocks are perfect options for those looking for sustainable passive income streams.
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Matthew DiLallo has positions at Brookfield Infrastructure Partners, Brookfield Renewable Corporation and Enbridge. The Motley Fool fills positions and recommends Brookfield Renewable Corporation and Enbridge. The Motley Fool recommends Brookfield Infra Partners LP Units and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.