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3 Energy Stocks You Can Buy and Hold for the Next Decade

By Tyler Crowe – Jan 15, 2022 at 5:03AM

Key Points

  • Cheniere Energy is shifting into capital return mode.
  • NextEra Energy Partners is a targeted investment in renewable power growth.
  • Enterprise Products Partners has always had a large payout, but management is growing it even more now.

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These three energy stocks all have assets with the power to generate cash for investors,

There is a cliche in the investing world that goes like this: Time in the market is more important than timing the market. It, like so many other cliches, sticks around because it is largely true. Investors who buy and hold stocks for several years instead of trading in and out of positions on a regular basis tend to do much better. 

Investing over the long haul allows you to buy quality companies and let growing earnings and cash flow do the heavy lifting for you. Three energy companies that look like good companies to buy and hold for several years right now are Cheniere Energy (LNG 3.24%), NextEra Energy Partners (NEP -0.41%) and Enterprise Products Partners (EPD 0.32%). Here's why these three energy stocks are ideal candidates for a buy-and-hold portfolio. 

An overhead shot of an LNG loading dock

Image source: Getty Images.

The market is giving the "full steam ahead" signal for Cheniere

A decision as big as building or expanding a liquid natural gas (LNG) facility means a lot of things need to go right. These types of investments need to be profitable for decades, so a management team has to be sure that demand for its product will be there for decades into the future.

Fortunately for natural gas exporter Cheniere Energy, the market seems to be saying that there is plenty of demand out. In the last six months of 2021, the company was able to secure sales contracts totaling 4.25 million tons per year of production for at least the next 13 years. Those contracts will help to justify management's planned 10 million-ton-per-year expansion at its Texas export facility. For those counting at home, the company's current facilities can produce and ship 45 million tones of LNG per year.

This is the largest growth project on the horizon for Cheniere, but investors don't need to wait for that project to see considerable returns. Its current operations are profitable and throwing off a lot of free cash flow. That cash has allowed management to instate a major shareholder return program that will include paying down $1 billion in debt annually for the next three years, pay a dividend of $1.33 per share -- a yield of 1.15% -- and a $1 billion share repurchase program.

The combination of a clear line of sight to considerable growth, a current operation that is throwing off cash by the truckload, and a management team willing to share the riches with shareholders make Cheniere an attractive buy-and-hold investment right now. 

Two people installing panels at a solar power facility.

Image source: Getty Images.

A fast-growing renewable power producer with the backing of a big utility

Investors who have looked at the utility sector have undoubtedly come across NextEra Energy (NEE -0.27%). It's the largest utility in the U.S. and has been a market-crushing stock over the past decade. What is less known, though, is that it has a publicly traded subsidiary that's growing even faster.

NextEra, the parent company, sells long-term contracted renewable power assets to NextEra Energy Partners once they are developed. NextEra gets the cash to develop even more assets, and NextEra Energy Partners investors get a stable portfolio of power generating assets that throw off lots of cash to pay a generous dividend. It's a relationship that worked well for investors as NextEra Energy Partners' total returns -- dividends and share price gains -- are higher than NextEra Energy's over the past five years. 

The one potential hang-up for investors is that NextEra Energy Partners' growth is wholly reliant on the parent company's decisions. While there is no reason right now to think that the parent company will stop selling assets to the partnership, there is always the chance that management could change course in the future.

But, if management continues on its current plan, then investors can expect good things for the next several years. Management is projecting distribution growth in the range of 12% to 15% per year through 2024, and that number isn't too far off from what it has achieved in the past five. So with a current payout yielding 3.55% and a good chance of that growing by double-digits or more over the next several years, NextEra energy Partners looks like a stong buy-and-hold candidate.  

LNG Total Return Level Chart

LNG Total Return Level data by YCharts

2022: A pivotal year for Enterprise Products Partners investors

As a long-term shareholder of Enterprise Products Partners, I can say that the past several years have been a bit disappointing. The oil and gas industry has not done well over the past five years, and Enterprise has been no exception. Its pipelines, petrochemical facilities, and other energy infrastructure operations continued to perform well over that time, but it hasn't necessarily translated into shareholder returns.

Enterprise has been in the middle of a strategic change that has affected its payout to investors. Management wanted to be less reliant on debt and equity to fund future growth. So to free up cash from operations, it slammed the brakes on payout growth for several years. Sure, the payout was never cut and the business remained as stable as it always has been, but growth was tepid.

Fortunately, it looks as if its finances have turned the corner and it can get back to rewarding shareholders again. Earlier this month, management announced both a 3.3% increase to its quarterly payout and it has started using excess cash to buy back units (master limited partnerships have units instead of shares). 

There may not be a lot of growth opportunities for oil and gas pipelines over the next several years, but Enterprise's business is generating enough cash that it can grow its payout and buy back more units to bolster returns. With a current distribution yield of 7.8% and a better chance at a growing payout over the next several years, it could be a good time to buy Enterprise Products Partners and hold it for several years. 

Tyler Crowe owns Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and NextEra Energy. The Motley Fool has a disclosure policy.

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