The energy industry is notoriously volatile. Energy prices can rise or fall significantly on the hint of supply or demand issues. Because of that, the sector isn't known for its ability to deliver stable growth.
However, some energy companies have learned to adapt their business models to thrive in this environment. Three energy stocks that stand out for their safety in the sector are Brookfield Renewable (BEPC 1.58%) (BEP 1.65%), Enterprise Products Partners (EPD -0.87%), and NextEra Energy (NEE -0.82%).
The ultra-low-risk renewable energy leader
Leading global renewable energy producer Brookfield Renewable built its business around stability. The company has a low-risk business model. It operates a globally diversified portfolio of renewable energy facilities.
Brookfield sells the power it produces to end users like electric utilities and large corporations under long-term, fixed-rate power-purchase agreements (PPAs). That enables the company to generate stable cash flow.
The company complements this conservative business model with a top-tier financial profile. It has a reasonable dividend-payout ratio and one of the highest credit ratings in the renewable energy industry. That gives it the financial flexibility to pay an attractive dividend while expanding its operations.
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Brookfield's low-risk business model and strong financial profile give it lots of visibility into future growth. A combination of higher power prices, cost-saving initiatives, and its development program should drive 6% to 11% cash flow per-share growth through 2026. Acquisitions could add another 9% to its bottom line each year.
This forecast easily supports its plan to grow its dividend by 5% to 9% per year. That would continue its steady growth, as it notched its 11th consecutive annual dividend increase earlier this year.
A model of consistency
Enterprise Products Partners has proven its durability over the years. The master limited partnership (MLP) has increased cash distributions to its investors for 23-straight years.
A big factor driving this stability is its business model. The MLP operates a diversified portfolio of energy midstream assets like oil and gas pipelines, processing plants, storage terminals, and export facilities. These assets primarily generate steady fee-based income for Enterprise.
While Enterprise pays out a healthy portion of that money to support its dividend, it covered its payout by a comfortable 1.7 times last year. That gave it some of the money to finance its expansion program. Meanwhile, it has one of the best balance sheets in the MLP sector, providing additional financial flexibility to fund growth.
Enterprise's strong balance sheet also provides it with the flexibility to make acquisitions. It unveiled its latest deal earlier this year, acquiring Navitas Midstream for $3.25 billion. Along with Enterprise's expansion projects, that acquisition should give it the fuel to continue growing its distribution in the coming years.
A powerful combination
NextEra Energy is one of the country's largest electric utilities. It also has a sizable energy resources business, which operates renewable energy facilities, natural gas pipelines, and electric-transmission lines. The utility business generates steady earnings backed by government-regulated rates, while the energy resources segment produces stable fee-based cash flow.
The company also boasts a top-tier financial profile. It has a lower dividend-payout ratio than other utilities and one of the strongest balance sheets in the sector. That's giving it the financial flexibility to invest billions of dollars in expanding its industry-leading clean energy infrastructure operations.
That should enable the company to continue delivering steady earnings and dividend growth. NextEra has expanded its adjusted earnings per share at an 8.4% compound annual growth rate since 2006, while growing the dividend at a 9.8% compound annual rate during that time frame.
Overall, it has delivered over 25 years of consecutive dividend growth, qualifying it as a Dividend Aristocrat. It currently expects to grow its payout by around 10% annually through at least 2024, powered by its clean energy investments and rock-solid financial profile.
Safety amid a risky industry
Brookfield Renewable, Enterprise Products Partners, and NextEra Energy stand out in the energy industry for their stable business models and conservative financial profiles. That's enabled them to deliver consistent earnings and dividend growth over the years, despite the sector's volatility. This trio should continue producing stable results, making them lower-risk ways to invest in the energy sector.
