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3 Top Energy Dividend Stocks to Buy in January

By Matthew DiLallo – Jan 9, 2022 at 4:08AM

Key Points

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These energy stocks pay high-quality dividends.

The energy industry is coming off its best year in quite some time. Higher oil and gas prices fueled some big-time gains across the sector last year. The improving market conditions have also bolstered the industry's financial picture, giving many energy companies the flexibility to pay higher dividends. Three energy dividend stocks that stand out as attractive buys this month are ConocoPhillips (COP -1.03%)Enbridge (ENB 0.77%), and Clearway Energy (CWEN 3.43%) (CWEN.A).

Returning a gusher of cash to investors in 2022

Higher oil prices have been a boon for ConocoPhillips. The oil giant generated $10 billion in cash flow from operations through the third quarter. That easily funded the company's $1.8 billion of dividend payments. It also covered its $3.8 billion of capital spending and allowed it to repurchase $2.2 billion of shares, with money left over to strengthen its already top-notch balance sheet. 

Oil pumps at sunrise with money in the background.

Image source: Getty Images.

ConocoPhillips expects to return more cash to shareholders in 2022. The oil company increased its quarterly dividend by 7% late last year to $0.46 per share each quarter, pushing the current yield up to 2.5%, almost double that of the S&P 500. That puts the company on track to pay nearly $2.4 billion in dividends in 2022. However, that's only a fraction of the cash it expects to return to investors. ConocoPhillips also expects to repurchase $3.5 billion of shares and pay up to $1 billion through a variable return of cash. It recently declared its first variable cash payment of $0.20 per share, providing investors with some extra income. Combined with its attractive quarterly dividend, the potential for these additional cash payments makes ConocoPhillips stand out as a great dividend stock to own in 2022. 

Another year, another dividend increase

Enbridge has an exceptional dividend track record. Late last year, the Canadian energy infrastructure giant announced that it would increase its dividend by 3% for 2022. That's its 27th consecutive year with a dividend increase. With that raise, Enbridge yields nearly 7%. 

Enbridge shouldn't have any problems continuing to grow its dividend in the future. Thanks to its strong balance sheet and conservative dividend payout ratio, it has the capacity to invest billions of dollars each year on new expansion projects, acquisitions, and share buybacks. It already has several expansions lined up, giving it a clear line of sight to grow its cash flow per share at a 5% to 7% annual rate through at least 2024.

Meanwhile, it sees plenty of growth beyond that timeframe. Enbridge believes it can invest billions of dollars each year to expand its legacy oil and gas pipeline operations and grow its renewable energy platform. In addition, it has started exploring emerging lower carbon opportunities, including green hydrogen and carbon capture and storage. These potential future investments position Enbridge to continue growing its cash flow and dividend in the coming years. In the meantime, investors are getting paid well while they wait for these new growth drivers to materialize. 

Focused on the future of energy

Clearway Energy focuses on owning electricity-generating facilities that supply cleaner power. It's one of the largest renewable power producers in the U.S. It also owns several environmentally sound gas-fired power plants. These facilities generate steady cash flow backed by long-term power purchase agreements, which support Clearway's 3.8%-yielding dividend. 

Clearway believes it can grow that dividend toward the upper end of its 5% to 8% annual long-term target rate through 2026. A big driver is the recent sale of its thermal assets to private equity giant KKR (KKR -1.03%) for $1.9 billion. Clearway already has deals in place for half of those proceeds, giving it the power to grow its dividend at a high-end rate for the next couple of years. Meanwhile, it should have plenty of opportunities to put the rest of the proceeds to work. It has a strategic relationship with a renewable energy developer and a long track record of making needle-moving third-party acquisitions. It has already identified several potential drop-down opportunities, putting it in a strong position to deliver on its high-end dividend growth objectives. With a yield near 4% and the potential for 8% yearly growth, Clearway could produce double-digit annual total returns over the next several years, making it a great dividend stock to buy this month.   

Great energy income streams for 2022 and beyond

ConocoPhillips, Enbridge, and Clearway Energy stand out as some of the best dividend options in the energy sector this January. All three companies pay above-average dividends that they expect to grow in 2022 and beyond. That combination of growth and income could enable these energy stocks to produce attractive total returns in the coming years.

Matthew DiLallo owns Clearway Energy, Inc., ConocoPhillips, and Enbridge. The Motley Fool owns and recommends Enbridge. The Motley Fool recommends KKR. The Motley Fool has a disclosure policy.

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