The energy industry can be a great place to find dividend stocks. Many pay above-average yields due to business models built around generating steady income. Three that stand out as attractive buys in the sector this month for dividend seekers are Crestwood Equity Partners (NYSE:CEQP)Clearway Energy (NYSE:CWEN)(NYSE:CWEN.A), and Xcel Energy (NASDAQ:XEL)

A high yield for a cheap price

Crestwood Equity Partners is a master limited partnership (MLP) that operates primarily fee-based midstream infrastructure. That business model generates lots of recurring cash flow that is relatively immune to fluctuations in energy prices and volumes. That was evident last year as Crestwood grew its earnings by 10% despite all the turbulence in the energy market. 

$100 bills with the word dividend on top.

Image source: Getty Images.

The company expects even better results in 2021, fueled by stronger-than-expected energy market conditions and a recent string of strategic transactions. Those factors have the company on track to generate enough cash flow to cover its big-time dividend -- which currently yields 9.2% -- by two times. That will leave it with enough excess cash to finance its capital projects with about $130 million to $180 million left over for debt reduction and repurchasing additional equity.

Those moves will put its high-yielding payout on an even firmer foundation while enabling the company to enhance shareholder value by repurchasing its deeply discounted equity

High-powered dividend growth ahead

Clearway Energy operates renewable energy and natural gas generating facilities. It sells the power these assets produce to third parties like electric utilities under fixed-rate power purchase agreements. That enables it to generate steady cash flow to support its 4.7%-yielding dividend.

Clearway Energy expects to grow that payout at a 5% to 8% annual rate in the coming years, with it targeting high-end growth in 2021. Powering that forecast is the roughly $880 million of renewable energy investments it has secured over the past 12 months and its increasingly visible pipeline of future opportunities. The company has lots of financial flexibility to capture this growth thanks to a reasonable dividend payout ratio and its ability to secure $1.4 billion of capital last year. That should enable it to continue locking up investments that will power future dividend growth.  

Transitioning to the future

Xcel Energy is a utility focused on the midwestern part of the country. The company's operations generate relatively stable income backed by government-regulated rates. That cash flow helps support its 2.8%-yielding dividend.

Currently, fossil fuels are the primary source powering Xcel's dividend, but the company is slowly transitioning to cleaner power. It expects to invest $24.3 billion through 2025 as part of a multidecade strategy to achieve its bold goal of delivering carbon-free electricity by 2050. The company anticipates that this investment will power 5% to 7% annual growth in earnings per share through 2025. That should support similar dividend growth. Add in Xcel's reasonably conservative dividend payout ratio of 60% to 70% of its earnings and solid investment-grade balance sheet, and it has plenty of financial flexibility to support its expansion plan.

Solid income options for the long-term

Crestwood Equity Partners, Clearway Energy, and Xcel Energy offer investors above-average dividends backed by stable cash flow and solid financial profiles. Because of that, they're great options for those seeking ways to generate passive income. All three should be able to sustain and grow their payouts in the coming years, making them ideal dividend stocks to hold for the long haul.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.