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3 Dividend Stocks That Should Pay You the Rest of Your Life

By Matthew DiLallo - Sep 15, 2019 at 10:16AM

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This long-term trend should give these companies the power to keep paying dividends for decades to come.

The world's developed economies need to invest a staggering $10 trillion to transition from fossil fuels to renewable energy. That switch won't happen overnight. Because of that, the sector is an ideal spot for investors with a long-term mindset.

Most renewable energy companies are plowing all their cash flow back into growth opportunities. Some, however, are returning a growing portion of it to investors via dividends. Because of that, they can be excellent options for those seeking a potentially lifelong income stream. Three that should fit that bill are Atlantica Yield (AY 5.36%), Pattern Energy (PEGI), and Xcel Energy (XEL 2.64%).

A person handing over cash.

Image source: Getty Images.

Steady cash flow from sustainable infrastructure

Atlantica Yield operates a diversified portfolio of infrastructure assets focused on the power and water sectors. Renewable energy (wind, solar, and hydro) currently supplies 66% of its cash flow. The company compliments those assets with efficient natural gas power plants (16% of cash flow), electricity transmission assets (14% of cash flow), and water desalination facilities (4% of cash flow).

This portfolio generates very stable and predictable cash flow. That's because Atlantica sells all the power it produces as well as the capacity on its other assets to end-users under long-term, fixed-rate contracts. That gives it plenty of money to pay a dividend that currently yields 6.5%. It uses the funds it doesn't return to shareholders as well as its strong balance sheet to invest in expanding its portfolio. In the company's view, it has enough opportunities to power 8% to 10% annual growth in its dividend through at least 2022. Meanwhile, with a sound financial profile, and excellent long-term growth prospects, Atlantica should have plenty of power to continue paying dividends in the decades ahead.

A primarily wind-powered income stream

Pattern Energy operates a portfolio of wind and solar power generating facilities in the U.S., Canada, and Japan, though most of its assets are wind farms. Like Atlantica Yield, Pattern sells the bulk of the power it produces to end users like utilities under long-term, fixed-rate contacts. That enables it to generate stable and predictable cash flow.

At the moment, Pattern Energy pays out nearly all its cash flow to investors in support of its 6.2%-yielding dividend. However, the company aims to get its payout ratio down to a more comfortable 80% by the end of next year. That will allow it to retain more money to reinvest in expanding its portfolio.

Most of that growth will probably come from acquisitions. That's because it invested in a renewable energy development company, which provides it with clearly identified opportunities. That entity, for example, has two facilities under construction and three more in late stages of development. Meanwhile, its improving financial flexibility will enhance its ability to invest in future developments as well as make outside acquisitions. Those factors should give it the power to keep paying dividends for years to come.

Targeting zero could pay big dividends

Xcel Energy is a utility with four operating companies focused on distributing electricity and natural gas to customers across America's midsection. Currently, the company uses fossil fuels to generate the bulk of its power with coal supplying 33% and natural gas at 29%. However, it aims to tilt the balance toward renewables in the coming years. By 2030, the company wants renewables to produce 60% of its power, up from 22% last year. Meanwhile, it's targeting to be carbon-free by 2050.

Xcel Energy's strategy is good not only for the environment but also its shareholders. It plans to invest $20.1 billion through 2023 (18% of which will be on renewables), which should help grow its earnings at a 5% to 7% annual rate. That should give Xcel Energy the power to increase its 2.6%-yielding dividend at a similar yearly pace. This trend should continue in the decades to come, given its increasing focus on investing in renewables to power the shareholder payout.

Income stocks for the long haul

Renewable energy is a multi-decade opportunity for investors, and the sector has the potential to pay dividends for years to come. That's why those looking for a long-term income stream should consider companies like Atlantica Yield, Pattern Energy, and Xcel Energy. They should be able not only to keep paying dividends but also continue growing them in the decades to come.


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Stocks Mentioned

Xcel Energy Inc. Stock Quote
Xcel Energy Inc.
$72.63 (2.64%) $1.87
Pattern Energy Group Inc. Stock Quote
Pattern Energy Group Inc.
Atlantica Sustainable Infrastructure plc Stock Quote
Atlantica Sustainable Infrastructure plc
$33.99 (5.36%) $1.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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