For decades integrated oil giants had been seen as reliable dividend payers providing a product that the world couldn't live without. Now, however, it is pretty clear that oil's dominance of the world's energy markets is slowly coming to an end. If that has you thinking beyond oil, here are three dividend-paying energy stocks that might be a good fit for you.
1. Down to the basics
Not so long ago, Dominion Energy (D 2.62%) had an upstream energy exploration and production business, but it jettisoned that. It also owned midstream assets in the pipeline space, but those recently got sold, too. Now Dominion is largely a boring utility stock. That's not such a bad thing, even though the midstream sale came with a 33% dividend cut given the size of the division.
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The thing is, Dominion's set to get back on the growth path backed by regulator-approved spending. The company has $32 billion in capital spending scheduled over the next five years or so. That, in turn, is expected to result in around 6.5% annualized earnings growth through 2025. And that will allow the company to increase the dividend at a rate of around 6% a year while maintaining a solid payout ratio of roughly 65%. The current yield is about 3.3%, which isn't as high as some of the oil giants, but overall this looks like an attractive balance of yield and growth.
2. A clean-energy giant
The next name on the list is U.S. electric utility giant NextEra Energy (NEE 0.45%). There are some similarities between Dominion and NextEra, in that they both own regulated utilities. In NextEra's case it runs the Florida Power & Light company, the dominant provider in the Sunshine State, which has long benefited from population growth. However, where things get interesting is that NextEra has layered a renewable power business on top of its solid regulated utility foundation.
This is no small business, either, given that NextEra claims to be "the world leader in electricity generated from the wind and sun." With 26 gigawatts of generating capacity in its NextEra Energy Resources division, that's perhaps not such an outrageous claim. That makes this a great option for investors looking to bridge the old and the new in the broader energy sector. What's notable, however, is that NextEra has plans to add as much as 30 gigawatts of additional renewable projects by the end of 2024. That, plus spending plans in its regulated business, is expected to result in 6% to 8% earnings growth over the next few years, with the dividend expanding at an even more impressive 10% clip through "at least" 2022. The current dividend yield is a miserly 2% or so, but with even higher dividend growth potential than Dominion, this looks like solid option for dividend growth investors who think oil is going the way of the dinosaur.
ENB Dividend Yield data by YCharts
3. Going, going, but not yet gone
While it is clear that electricity, particularly clean energy, is going to eventually displace oil as the world's dominant power choice, we are a long way from the day when oil will no longer be needed. This is why some investors might want to consider Canadian midstream giant Enbridge (ENB 2.83%). The company's biggest businesses generate fees from operating the pipelines that move oil and natural gas around North America. Together these two cash-cow businesses make up around 83% of EBITDA. The rest is split between a regulated natural gas utility operation (14% of EBITDA) and a renewable-power business (the remainder).
So Enbridge has its toes in what is probably the most stable side of the energy industry, a boring utility business, and the emerging clean energy sector. Note that it has a number of large offshore wind projects in Europe that it is working on, which should result in the clean energy business growing in importance over the next few years. However, the biggest draw here is the huge 7% dividend yield. The company's growth plans (which include capital spending of between $3 billion and $6 billion a year), meanwhile, are expected to result in distributable cash flow growth of between 5% and 7% a year. The dividend is likely to trail just a touch behind that growth rate. Investors looking for a high-yield energy option that avoids the ups and downs of oil prices while also reaching into the utility and renewable power arenas will probably find Enbridge appealing.
Shifting with the times
You can't really just forget about oil yet because the world still needs the fuel. However, that doesn't mean you can't start to adjust your exposure to the energy sector so you don't have to worry as much about the changes taking shape in the industry. Dominion is a boring electric name that has repositioned for solid growth. NextEra is stepping on the accelerator as it builds out its clean energy business, taking full advantage of the energy industry's changing landscape. And Enbridge is a high-yield option that lets you keep some tangential exposure to oil while also benefiting from the clean energy shift that's taking shape. One, or more, will likely be attractive if you are worried about the future for oil drillers today.
