The world needs more energy to meet steadily growing demand. According to the International Energy Agency, total energy demand will grow by more than 20% through 2040. While renewable energy sources will grow fastest, fossil fuels will continue playing a vital role in powering the global economy.
Because of that, the world will need to continue building more infrastructure to support fossil fuels, especially for cleaner-burning natural gas. That should give pipeline companies the fuel to continue growing their big-time dividends. This outlook suggests leading pipeline companies Enterprise Products Partners (EPD -0.80%), Energy Transfer (ET -1.09%), Kinder Morgan (KMI -0.12%), and Williams (WMB 0.63%) should remain attractive options for those seeking durable passive-income streams.
The fuel to keep growing
Enterprise Products Partners has been an excellent income stock over the years. The master limited partnership (MLP) has increased its distribution to investors for 24 straight years. It has grown its payout by 5.6% over the past year, pushing its yield to 7.6%. That's multiples above the 1.7% dividend yield offered by an S&P 500 index fund.
That big-time payout is on rock-solid ground. Enterprise Products Partners generated enough cash to cover its distribution by 1.9 times in the second quarter. That gives it a huge cushion while enabling it to retain some money to fund expansion projects. It also has a top-tier balance sheet, adding to its funding flexibility. Meanwhile, the MLP has plenty of growth lined up, with $5.5 billion of expansion projects underway. As those projects enter service in the coming years, they should grow its cash flow, giving the MLP the funds to continue increasing its big-time payout.
More upside ahead
Energy Transfer currently offers a nearly 8% distribution yield. The MLP has worked hard to put its big-time payout on a firmer foundation by repaying debt. That's putting it in the position to return more money to investors. The company has already boosted its payout by more than 50% this year as it works toward its goal of returning the distribution to its former peak, implying more than 30% upside potential.
The pipeline company generated enough cash in Q2 to cover its payout with nearly $1.2 billion to spare. That's allowing it to repay debt, fund expansion projects, and make acquisitions. The company has several expansions currently underway and more in the pipeline. They should grow its cash flows in the future, which could enable Energy Transfer to eventually boost its payout well past its former peak.
A rock-solid payout
Kinder Morgan's dividend currently clocks in at 6.4%. That payout is on a rock-solid foundation. The company only uses about half of its very stable cash flow to support its dividend. It also has a strong balance sheet, which it recently enhanced by cashing in on the robust liquified natural gas (LNG) market. That gives it plenty of financial flexibility to fund new investments.
Kinder Morgan has several growth projects underway. It's expanding some of its natural gas pipelines, building a renewable natural gas platform, and constructing several renewable fuel hubs. These investments should help grow its cash flow in the future while enhancing the long-term sustainability of its platform. That should give it the fuel to continue growing the dividend as it has in each of the last five years.
Adding more fuel to grow the dividend
Williams currently pays a 5.7%-yielding dividend. That payout is also on a firm foundation. The natural gas pipeline company generates very stable cash flow backed by long-term contracts and government-regulated rate structures. Meanwhile, it only expects to pay out about half its cash flow to support its dividend this year.
That allows Williams to retain cash to expand its pipeline operations and continue to strengthen its already solid balance sheet. It currently has several expansion projects under construction across its platform and more in development. Meanwhile, the company has made two acquisitions this year to expand its footprint. These expansion-related investments should enable Williams to grow its cash flow, likely giving it the fuel to steadily increase its high-yielding dividend.
Solid options for yield-seeking investors
The economy needs more energy so it can keep growing. That means energy companies must continue expanding their infrastructure to support higher volumes. Because of that, pipeline companies like Enterprise Products Partners, Energy Transfer, Kinder Morgan, and Williams should be able to grow their cash flows in the future, which should enable them to continue increasing their already hefty dividends. That makes any of them excellent options for investors seeking a high-yielding energy stock to buy and hold for the coming years.