The energy industry has historically offered above-average dividend yields, making it ideal for those seeking to earn passive income. While the oil and gas industry is volatile, causing dividend payments in that sector to fluctuate wildly, other parts of the energy sector generate much steadier cash flow. That allows companies in those segments to pay a more sustainable dividend.
Three energy stocks that offer high-yielding dividends they should have no problem sustaining over the long term are Brookfield Renewable (BEPC -0.03%) (BIP 0.68%), Enbridge (ENB 0.49%), and Consolidated Edison (ED 0.80%). That makes them ideal options for those seeking to earn passive income.
Powerful dividend growth ahead
Brookfield Renewable operates a globally diversified renewable energy platform. It generates steady cash flow by selling the power it produces to utilities and large corporate buyers under long-term, fixed-rate power purchase agreements. Those contracts supply Brookfield with stable cash flow to support its dividend. The company currently offers a 3.4% dividend yield, more than double the 1.6% yield of an S&P 500 index fund.
That high-yielding payout is on a very sustainable foundation. Brookfield has a reasonable dividend payout ratio, enabling it to retain cash to grow its business. Meanwhile, the company has a strong investment-grade balance sheet, providing additional financial flexibility.
Brookfield expects its cash flow to grow by 6% to 11% per share through at least 2026, powered by higher electricity prices and its extensive pipeline of renewable energy development projects. Meanwhile, it sees acquisitions adding up to another 9% to its bottom line each year. This outlook easily supports Brookfield’s view that it can grow its high-yielding dividend by 5% to 9% per year. That would continue to company’s trend of annual dividend increases, which hit the 11th consecutive year mark in 2022.
The fuel to keep growing
Enbridge operates an extensive oil and gas pipeline network in North America, one of Canada’s largest natural gas utilities, and a renewable energy business. These businesses generate steady cash flow backed by long-term contracts and government-regulated rate structures. That helps support Enbridge’s dividend, which currently yields nearly 6%.
That big-time payout is on a solid footing. Enbridge has a fairly conservative dividend payout ratio and a rock-solid investment grade credit rating. That gives the company billions of dollars of annual investment capacity to continue expanding its operations.
Enbridge estimates it can grow its cash flow per share by a 5% to 7% compound annual rate through at least 2024. That should enable the company to continue increasing its dividend and extend a growth streak that currently stretches 27 straight years.
This elite track record isn’t showing any signs of stopping
Consolidated Edison is a utility that distributes electricity and natural gas to the New York City metro area. It also has a large-scale renewable energy business and investments in natural gas pipelines and electricity transmission lines. These businesses all produce steady cash flow to support the company’s dividend, which currently yields 3.3%.
The utility’s dividend is on solid ground. 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 balance sheet. Those features give Consolidated Edison the financial flexibility to continue expanding its operations.
Consolidated Edison expects to invest $15.7 billion in a combination of green energy, safety, and reliability investments through 2024. These investments should enable the utility to continue growing its earnings. That should give it the power to keep growing the dividend. Consolidated Edison delivered its 48th straight year of increasing the dividend in 2022, the longest period of consecutive annual dividend increases of any utility in the S&P 500.
Great ways to energize your passive income
Brookfield Renewable, Enbridge, and Consolidated Edison offer investors high-yielding dividends. They also have excellent track records of steadily increasing those payouts. With more growth likely in the future, these high-yielding energy stocks are perfect options for those seeking sustainable passive income streams.
Matthew DiLallo has positions in Brookfield Infrastructure Partners, Brookfield Renewable Corporation, and Enbridge. The Motley Fool has positions in 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.