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The 3 Safest Energy Dividends Right Now

By Matthew DiLallo - Updated May 18, 2020 at 8:03AM

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These dividends have the strength to endure challenging times.

Dividend payments have been decimated this year because of the impact the COVID-19 outbreak is having on the economy. One of the sectors hit particularly hard has been the energy industry where dividends have plunged with oil demand. Dozens of companies have reduced or suspended their payouts with many more likely to follow unless conditions dramatically improve.

However, not all energy dividends are at risk for a reduction as the sector does boast many sustainable payouts. Three of the safest these days are those paid by TC Energy (TRP -0.82%)NextEra Energy (NEE 0.58%), and Brookfield Renewable Partners (BEP -0.32%).

An open safe with a bag full of money on a table.

Image source: Getty Images.

Highly resilient cash flows

Canadian pipeline giant TC Energy's business model has proved to be immune to the current downturn in the oil market. That's because 92% of its cash flow has no exposure to variability in commodity prices or volumes. Because its customers pay the same rate regardless of market conditions, it generates very stable cash flow.

Meanwhile, TC Energy only pays out about 40% of those funds to support its 5%-yielding dividend. That's well below the typical ratio in the pipeline sector, which can be as high as 80%. The company also has one of the top credit ratings in its peer group. That conservative financial profile provides TC Energy with the financial flexibility to expand its pipeline network, with it currently boasting the largest backlog in the sector. Those factors lead TC Energy to believe it can grow its dividend by 8% to 10% next year and at a 5% to 7% annual pace after that, even if market conditions remain weak.

A durable dividend

Electric utility NextEra Energy also generates steady income. That's because the demand for electricity in the areas where it operates has held up relatively well in part because of weather conditions. Meanwhile, customers must buy the power its renewable energy business produces thanks to contractual obligations.

As a result, NextEra fully expects to deliver on its outlook for 2020. It also reaffirmed its long-term forecast, which would see it grow its earnings per share at a 6% to 8% annual rate through 2022. Combine that with its conservative dividend payout ratio and balance sheet, and NextEra expects to increase its 2.4%-yielding dividend at a 10% annual rate through 2022.

A safe and sound payout

Brookfield Renewable Partners also operates assets that are relatively immune to near-term issues in the energy market. That's because it sells the bulk of the renewable electricity it generates under long-term contracts. As a result, it produces reasonably stable cash flow.

Meanwhile, Brookfield pays out a conservative amount of that money to support its 4.2%-yielding dividend. It complements that with a strong balance sheet. That gives it the financial flexibility to expand its operations via acquisitions and development projects. In Brookfield's view, those two growth drivers will help increase its cash flow at a 9% to 16% annual rate through at least 2024, which should support 5% to 9% yearly dividend increases. By growing cash flow faster than the payout, Brookfield will increase the safety of its already sound dividend. 

These energy dividends will endure

Many energy companies have had trouble maintaining their dividends because falling prices and volumes affected their cash flow. This trio of dividend-paying energy stocks, however, is reasonably immune to those issues, making their payouts among the safest in the sector since they should endure these challenging times and keep growing in the coming years, even if the economy doesn't bounce back quickly.

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Stocks Mentioned

TC Energy Corporation Stock Quote
TC Energy Corporation
$50.88 (-0.82%) $0.42
NextEra Energy, Inc. Stock Quote
NextEra Energy, Inc.
$79.57 (0.58%) $0.46
Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
$34.65 (-0.32%) $0.11

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

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