The energy sector can be a challenging place for income investors. Energy-price volatility has caused many energy companies to reduce their dividends in the past.
However, the energy sector also boasts several standout dividend stocks. Three excellent ones to consider buying this March are Canadian energy infrastructure giant Enbridge (ENB 0.44%), utility Consolidated Edison (ED 0.80%), and clean-energy producer Clearway Energy (CWEN -0.55%) (CWEN.A -0.64%).
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A fully energized dividend
Enbridge has been an outstanding dividend stock over the years. The Canadian pipeline operator has increased its dividend in each of the last 26 years. Even more impressively, it's grown its payout at a 10% compound annual rate during that time frame.
The company expects that streak to continue for the foreseeable future. Enbridge currently expects to grow its cash flow per share at 5% to 7% annually through at least 2023. Fueling that forecast: its ability to enhance the returns of its existing assets, and continue expanding its energy infrastructure platform. Enbridge currently has billions of dollars of growth projects under construction, including new oil and gas pipelines across the U.S. and Canada, and several offshore wind farms in Europe. Meanwhile, it has a significant pipeline of investment opportunities to extend its growth outlook further into the future; these include projects to participate in the energy transition, such as additional renewable energy investments and alternative-fuel projects.
Enbridge has an excellent financial profile to support its growth, including an investment-grade credit rating and a reasonable dividend payout ratio. That makes it likely to continue growing its dividend, currently yielding 7.5%, over the next several years.
On track for a crown
Consolidated Edison has an even better dividend track record. The utility focused on the New York City area has increased its payout for an impressive 47 straight years. That has it on pace to join the elite group of Dividend Kings.
That crowning achievement seems likely. Consolidated Edison expects to grow its adjusted earnings per share from this year's level at a 4% to 6% compound annual rate over the next five years. Powering that outlook are the anticipated recovery and growth of the New York City market, and Consolidated Edison's investment to expand its solar energy business, which currently ranks as the second-largest in the nation.
The utility has a strong investment-grade balance sheet and solid dividend payout ratio to fund those investments, so its dividend, now yielding 4.6%, looks like an excellent option for income-seekers.
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A powerful dividend-growth plan
Clearway Energy doesn't have the dividend track record of Enbridge and Consolidated Edison: The clean-power producer had to slash its payout by 40% in 2019 after one of its largest customers declared bankruptcy. However, that utility has since reemerged, enabling Clearway to reset its dividend last year. Overall, the company boosted the payout by an eye-popping 59% in 2020.
Meanwhile, there's plenty more growth ahead for Clearway's dividend. The company closed or committed to $880 million of new growth investments in 2020, and continued securing new opportunities in 2021. So Clearway believes it can grow its dividend by 5% to 8% per year, with it likely to hit the upper end this year. It also has a large pipeline of future investment opportunities, thanks to its strategic relationship with a renewable-energy project developer.
While Clearway doesn't have the balance-sheet strength of Consolidated or Enbridge, it's been able to find the funding to close new deals. It raised $1.4 billion of capital last year by optimizing project-level debt, issuing new financing at the corporate level, and recycling non-strategic assets. Meanwhile, it recently raised $925 million via a low-cost green bond, giving it the cash to refinance existing debt and fund new investments. Clearway's dividend, with a current yield of 4.6%, appears likely to keep rising over the next several years.
Great ways to energize your passive income
Enbridge, Consolidated Edison, and Clearway Energy stand out in the energy sector. They offer investors above-average dividend yields, and they expect to continue increasing those dividends for the next several years. That means they should produce attractive total returns, making them great options for dividend investors to consider buying this March.
