Make money while you sleep. Who doesn't like that? Investing in companies that pay dividends is an excellent way to generate passive income. High-yielding stocks can be a good source of income, but the yield isn't the only thing that matters. You want to invest in quality companies with solid balance sheets and growth potential.
Three high-yielding stocks you can buy in the energy space to accelerate your passive income today are Brookfield Renewable (BEP +2.87%)(BEPC +0.00%), Enterprise Products Partners (EPD 0.44%), and Energy Transfer (ET +1.54%).
NYSE: BEPC
Key Data Points
1. Brookfield Renewable has locked in dividend growth and has the potential to go higher
Brookfield Renewable Partners is one of the most prominent players in clean energy, with over $68 billion in assets under management (AUM). Brookfield Renewable's portfolio contains assets in hydropower, wind, solar, and energy storage facilities, with a generating capacity of 23 gigawatts (GW) globally. It's already a world leader in hydroelectric power and continues adding to its other renewables.
Last year was solid for Brookfield Renewable. Funds from operations (FFO) grew by 8% from the prior year. Brookfield Renewable recently raised its payout by 5.5%, its 12th consecutive year of increasing its payout by 5% or more.
It closed and agreed on investments of up to $12 billion through itself and partners during the year. These secured funds will help drive 8% annual FFO per share growth through 2027, which should help it grow its dividend by 5% to 9% annually. Brookfield Renewable yields over 4% right now, and its attractive growth potential in the fast-growing renewables space makes this stock an excellent opportunity for income investors today.
NYSE: EPD
Key Data Points
2. Enterprise Products Partners has an attractive yield and a strong cash position
Enterprise Products Partners pays out a stellar 7.43% dividend yield, but more impressively, it has raised its payout for 24 consecutive years.
What makes Enterprise appealing is that it isn't vulnerable to wide swings in the price of oil and gas. Instead, it acts as a middleman, moving and storing oil, natural gas, natural gas liquids, and refined product. Midstream operators like Enterprise earn money through fixed-fee contracts or volume-based contracts, providing steady cash flow that it can invest in new projects and acquisitions, or to reward shareholders.
Last year, the energy partnership produced $7.8 billion in distributable cash flow. It invested $1.4 billion in projects and $3.4 billion in acquisitions in addition to its dividend. Its stellar payout looks sustainable, too, as measured by its distribution coverage ratio (DCR). This ratio measures the distributable cash flow divided by the total distributions paid out. Ratings agencies like to see a ratio above 1, so Enterprise's 1.9 DCR makes it remarkably sound for investors looking for passive income.
NYSE: ET
Key Data Points
3. Energy Transfer offers a high-yield payout and strong cash flows
Energy Transfer also operates in the midstream space, giving it many similar benefits to Enterprise Products Partners. Its dividend yield is 9.48%, making it another solid high-yield dividend stock for income-minded investors.
Last year it produced $7.4 billion in distributed cash flow, which included $4.4 billion in excess cash flow after paying distributions. This strong cash position allowed it to make two acquisitions, reduce debt by $800 million, and cover its capital spending plans.
Looking forward to 2023, the MLP expects earnings to grow about 2% on the high end. It also expects to finish several projects during the year and reduce capital spending, which should boost its free cash flow during the year.
Additionally, Energy Transfer is working on a potential carbon-capture project with Occidental Petroleum. Carbon capture and storage (CCS) is the process of capturing carbon before it is released into the atmosphere and injecting it deep underground, closing the loop and returning carbon to the Earth. Occidental projects that CCS could be an industry worth up to $5 trillion in the future, presenting a massive opportunity for those in it.
Energy Transfer's payout is on solid footing, and its high yield makes it another good income opportunity for investors.
