The energy industry provides income-focused investors with lots of options. Several companies offer above-average dividend yields, making the sector great for earning passive income.
Three excellent energy stocks for income are Enbridge (ENB 2.30%), Kinder Morgan (KMI 2.03%), and TC Energy (TRP 4.70%). They all offer high-yielding dividends that they should be able to continue growing in the future.
Clear visibility through 2028
Enbridge’s dividend currently clocks in at 6.6%. That’s several times more than the 1.8% dividend yield on the S&P 500.
That big-time payout is on an extremely firm foundation thanks to Enbridge’s low-risk pipeline–utility business model. These businesses generate very steady cash flow backed by government-regulated rate structures and long-term contracts. Meanwhile, Enbridge pays out a conservative portion of its steady cash flow (roughly 65%) via the dividend. That enables it to retain lots of cash to fund its continued expansion. Enbridge also has a top-notch balance sheet, including leverage toward the low end of its target range, giving it additional financial flexibility.
Enbridge currently has an enormous backlog of commercially secured capital projects under construction. These include expansions of its gas pipeline transmission systems, gas distribution and storage investments, renewable power and new energy projects, and oil storage expansions. Those projects should come online through 2028, giving the company lots of visibility into future growth. The company’s focus on investing in cleaner energy, like natural gas and renewables, should allow it to grow for years to come.
The company believes its backlog can support 5% to 7% growth in its cash flow per share through at least 2024. That should enable Enbridge to continue growing its dividend. The energy infrastructure giant recently gave its investors another raise, making its 28th straight year of dividend increases.
Kinder Morgan’s dividend yield is right around 6% these days. That big-time payout is also on a very firm foundation. The company’s predominantly natural gas infrastructure assets generate lots of stable cash flow. Meanwhile, it pays out a very conservative portion of that steady cash flow (around 55%) via the dividend. Kinder Morgan also has a strong investment-grade credit rating, with leverage below its targeted level.
Those features give it tremendous financial flexibility. Kinder Morgan generates enough cash to cover its big-time dividend and capital projects with room to spare. That allows it to maintain a strong balance sheet and opportunistically repurchase shares.
Kinder Morgan has about $2.7 billion of capital projects in its backlog. Roughly $2 billion of those investments are for lower-carbon energy, including natural gas infrastructure expansion, renewable diesel projects, and renewable natural gas facilities. The company also has extensive carbon dioxide infrastructure, positioning it for the potentially lucrative carbon capture and storage market.
The company’s investments in lower-carbon fuels should enable it to continue growing its dividend. Kinder Morgan recently boosted its payout for the sixth consecutive year.
Powerful growth through 2026
TC Energy currently offers a 6.6% dividend yield. The Canadian pipeline giant can easily sustain that big-time payout.
The company generates very stable cash flow. Its Canadian and U.S. gas pipelines benefit from government-regulated rate structures. Meanwhile, long-term contracts support the cash flows of its liquids pipelines, Mexican natural gas pipelines, and nuclear power plant.
TC Energy pays out about half its steady cash flow via its dividend, enabling it to retain lots of cash to fund expansion. The company also has a strong balance sheet, allowing it to borrow money to fund its capital needs.
That strong financial profile supports TC Energy’s industry-leading capital project backlog. The energy giant has enough projects underway to grow its earnings at a 6% compound annual rate through at least 2026. That should support annual dividend growth in the 3% to 5% range and extend the company’s dividend growth streak, which currently stretches 22 straight years.
Great options for passive income seekers
Enbridge, Kinder Morgan, and TC Energy offer dividend investors high-yielding payouts they should have no problem sustaining. Given their strong financial foundations and growth prospects, those big-time payouts should keep rising. That makes them great stocks for investors seeking to energize their passive income in the coming years.
Matthew DiLallo has positions in Enbridge and Kinder Morgan. The Motley Fool has positions in and recommends Enbridge and Kinder Morgan. The Motley Fool has a disclosure policy.