While many Americans are still eagerly awaiting their third stimulus check, there's already talk of another round of payments. That's because many people would love these payments to continue. According to a recent poll, 65% of Americans would like recurring monthly checks for the duration of the pandemic.
However, instead of banking on another round of government payments that might never arrive, a better options is to set up a recurring income stream by investing in high-quality dividend stocks. Many of the best companies are Dividend Aristocrats, which have steadily increased their payouts in each of the last 25 years. Three great options in the energy sector are Canadian energy infrastructure giant Enbridge(ENB 0.27%), New York City-focused utility Consolidated Edison (ED -0.07%), and clean energy giant NextEra Energy (NEE 0.16%).
Going north of the border
Reuben Gregg Brewer (Enbridge): Canadian pipeline giant Enbridge has increased its dividend annually for 26 consecutive years. That includes a 10% hike in 2020 and a 3% hike already announced for 2021. The yield is a hefty 7.1% right now. Although no company's dividend is guaranteed, Enbridge has proven its payments can withstand hard times. Notably, its distributable cash flow payout ratio remains comfortably within the target 60% to 70% range.
The backbone for the company's future is its oil pipeline system (54% of the business). This is a cash cow operation that should remain important even as the world moves toward cleaner alternatives. However, the key is that it is helping fund Enbridge's efforts in natural gas pipelines and natural gas utilities (together 43% of the business), which are more attuned with the world's clean-energy shift. Oil will also help to pay for Enbridge's renewable power plans, notably including a material slate of offshore wind projects in Europe. This is a tiny 3% of the business today, but is expected to grow rapidly over the next few years.
All in, Enbridge believes it can support $3 billion to $4 billion worth of capital investment for many years to come, helping to grow distributable cash flow by 5% to 7% a year. Dividends should follow along for the ride. The best part? Those dividends are supported by a shift toward a cleaner future, helping to ensure the disbursement keeps growing for a very long time.
On the road to dividend royalty
Matt DiLallo (Consolidated Edison): Utility Consolidated Edison has been an elite dividend growth stock over the years. The company notched its 47th consecutive annual dividend increase earlier this year. That puts it firmly into Dividend Aristocrat status and on the road to becoming a Dividend King.
Consolidated Edison appears likely to hit that crowning achievement. The company currently expects to grow its adjusted earnings per share at a 4% to 6% annual pace over the next five years, giving it plenty of power to continue growing its dividend. Fueling that forecast is the expected post-pandemic recovery in the New York City region where it operates, and its world-class solar energy business. It's North America's second-largest power producer from the sun and the seventh-biggest globally. Consolidated Edison expects to invest billions of dollars in expanding those operations over the next few years, which should power steady earnings and dividend growth.
The company should be able to continue investing money to expand its operations in the coming years, powered by the energy transition to cleaner sources. According to one estimate, companies like Consolidated Edison will need to invest a jaw-dropping $100 trillion over the next 30 years to decarbonize the global economy. That outlook suggests the company should have ample fuel sources to keep growing its dividend in the decades ahead. Because of that, Consolidated Edison could supply its investors with a lifetime of income growth.
This new Dividend Aristocrat is also one of the best
Neha Chamaria (NextEra Energy): NextEra Energy is a new kid on the Dividend Aristocrats block, having joined the S&P Dividend Aristocrats index in January 2021. It's a really well-deserved crown, and I'd even go on to call NextEra Energy one of the best Dividend Aristocrats out there today, simply because it offers the best of both worlds: dividend stability and dividend growth.
While the fact that NextEra Energy achieved Dividend Aristocrat status is proof of how reliable and stable its dividends are, what's remarkable is how big its dividend has grown over the years. Between 2005 and 2020, NextEra's dividend grew at a compound annual rate of 9.6%. You just have to see what a massive difference that dividend growth has made to the stock's total returns during the period.
Given the growth potential ahead for NextEra Energy and its management's deep commitment to dividends, income investors can bank on this stock for years to come. The thing is, while NextEra's regulated utility, Florida Power & Light Company, is a great source of predictable cash flows, its renewable energy business is a key growth driver. The company is already the world's largest producer of wind and solar energy.
With management targeting around 10% annual growth in dividend per share through "at least" 2022 and the stock yielding 2%, NextEra Energy is one of the rare Dividend Aristocrats also poised for huge growth in the coming decades.