The energy industry is one of the best places to find high-yield dividend stocks these days. The average yield across the sector is 4%. That's the highest in the S&P 500 and more than double the index average of 1.7%.
Three great energy stocks for passive-income seekers are Enbridge (ENB 0.29%), Duke Energy (DUK -0.93%), and NextEra Energy Partners (NEP -2.52%). They all pay high-yielding dividends that they should be able to continue growing. That makes them ideal for earning passive income in the coming years.
Enbridge: Plenty of cash flow to continue growing its big-time dividend
Enbridge has been an outstanding passive income stock over the years. The Canadian pipeline and utility giant has paid dividends to its shareholders for more than 67 years. The company has increased its payout annually for the last 27 consecutive years, growing it at an impressive 10% compound annual rate. The energy infrastructure company currently offers investors an attractive yield of 7.2%.
That high-yielding payout is on rock-solid ground. Enbridge's low-risk pipeline-utility business model generates very stable cash flow backed by long-term contracts and government-regulated rate structures. Meanwhile, it pays out a conservative 60% to 70% of that cash flow to investors via the dividend. That gives it a nice cushion while allowing it to retain earnings to fund expansion projects. The company also has a solid investment-grade balance sheet, giving it additional financial flexibility.
Enbridge has a large backlog of commercially secured expansion projects under construction, which should grow its cash flow per share at a 5% to 7% annual rate through at least 2024. Meanwhile, it has a growing list of projects lined up to fuel growth beyond that time frame. Because of that, it should have no problem continuing to increase its high-yielding dividend.
Duke Energy: A powerful growth plan
Duke Energy also has an excellent dividend track record. The electric utility has paid dividends to its shareholders for 96 consecutive years. The company has a long history of growing its payout, which currently yields 4.5%.
Duke expects to be able to continue increasing it. Its utility operations generate steady cash flow to support its payout while allowing it to retain earnings for reinvestment. Meanwhile, it has a solid investment-grade balance sheet, giving it additional financial flexibility.
The company is in the midst of a major investment phase to transition its business to net zero carbon emissions. It plans to spend $145 billion over the next decade to transition its fleet toward cleaner energy and modernize its electrical grid. It expects these investments will grow its earnings at around a 7% compound annual rate through 2032. Duke's steadily rising earnings should enable it to sustain and grow its payout.
NextEra Energy Partners: Supercharged dividend growth
NextEra Energy Partners has delivered high-powered dividend increases since its formation in 2014. The clean-energy infrastructure company has grown its payout by 290%, powered by a steady stream of acquisitions from its parent, NextEra Energy (NEE -0.75%), and third parties. The company currently offers a 4.3% dividend yield.
NextEra Energy Partners believes it can grow its dividend by 12% to 15% annually through at least 2025. It expects to continue acquiring renewable energy assets from NextEra and third parties to deliver on that objective.
It has many ways to fund future deals. Financing sources include retained earnings after paying the dividend, using its balance sheet flexibility, and completing convertible equity portfolio transactions with institutional investors like private equity funds. NextEra Energy Partners' combination of a high dividend yield and high growth rate could enable it to generate high total returns for its investors in the coming years.
Powerful passive income streams
Enbridge, Duke Energy, and NextEra Energy Partners stand out with above-average yields in the already high-yielding energy sector. And those payouts should continue rising, making them attractive options for those seeking a sustainable passive income stream.