Dividend stocks are a great choice for investors looking for a regular income stream. The best dividend stocks offer a growing payout in addition to price returns stemming from a rise in stock prices. While investing in dividend stocks, it is important to select stocks that can generate regular income for the long term; think decades, not months. The best approach is to go for time-tested companies with sustainable growth prospects. Here are two dividend stocks that have the potential to generate growing dividends through 2030, and beyond.
Enterprise Products Partners
Enterprise Products Partners ( EPD -0.14% ) is a top midstream energy company involved in the transport, storage, and processing of oil, gas, and refined products. As the company isn't involved in the exploration and production of oil and gas, its earnings are not as directly tied to commodity prices as those of oil and gas producing companies. Enterprise Products earns a fee for transport, storage, processing, and other services performed for its customers.
The key factor that differentiates Enterprise Products from other energy companies is its financial discipline. The company's debt-to-EBITDA ratio of 3.7 is one of the lowest among its peers. This discipline allowed it to raise its distributions (think dividends that MLPs pay) for more than 21 consecutive years.
The other major factor that lends stability to Enterprise Products' earnings is its diversified operations. This diversification again helped the company during the pandemic. While its natural gas and crude oil operations were hit by lower demand, its natural gas liquids (NGL) segment offset that weakness. NGLs include ethane, propane, butane, and other hydrocarbons that feed the petrochemicals industry to produce a wide range of products including plastics, lubricants, paints, chemicals, etc. With a rising population, the demand for NGLs is expected to grow steadily. Moreover, unlike energy fuels, the petrochemicals industry doesn't have any viable alternatives for fossil fuels yet.
For the first nine months of 2020, Enterprise Products Partners' distributable cash flow was 1.6 times the distributions paid. The company has roughly $3.9 billion of projects under construction that should fuel its earnings growth in the coming years. With an attractive dividend yield of nearly 9%, this stock is a compelling buy for dividend investors.
Top Canadian energy company TC Energy ( TRP 2.12% ) has pipelines, storage facilities, and power generation assets in Canada, the U.S., and Mexico. The company's natural gas and liquids pipelines are largely regulated, allowing it to earn a stable income from these assets irrespective of commodity prices. Additionally, most of the company's remaining assets are backed by long-term fee-based contracts. Overall, roughly 95% of TC Energy's EBITDA comes from either regulated assets or assets backed by long-term contracts, providing it with a steady income stream.
Due to the regulated and contracted nature of its operations, TC Energy expects to hit its 2020 guidance of 9.3 billion Canadian Dollars in comparable EBITDA despite disruptions due to COVID-19 and volatile oil prices.
TC Energy has increased its dividends for 20 consecutive years at a compound annual growth rate of 7%. What's more, with a CA$37 billion capital program through 2023, the company is well-placed to continue growing its payouts in the future, too. Of these, it placed around CA$5 billion of projects into service in 2020. TC Energy expects to grow its dividends by 8% to 10% in 2021, and 5% to 7% beyond that.
In the third quarter, TC Energy's cash from operations was nearly double the amount of dividends it paid. The company's solid cash flows, growth projects, dividend growth, and strong coverage make its 5.7% yield extremely alluring for dividend investors. That makes TC Energy a dividend stock to buy and hold for the long term.