With 2023 drawing to a close, it's time to start looking ahead to the new year. Many investors are already considering making changes to boost their portfolio's performance in 2024.
Chevron (CVX 0.37%), Enbridge (ENB -1.21%), and MPLX (MPLX 0.17%) stand out to a few Fool.com contributors as great income stocks to add to your portfolio to ring in the new year. Here's why they think those stocks could put a charge in your portfolio's income-generating capabilities in 2024.
Hitting the income accelerator in 2024
Neha Chamaria (Chevron): Chevron is one of the best oil and gas stocks in terms of dividend stability and growth. The oil and gas producer increased its dividend for the 36th straight year in 2023, and you can safely expect another hike coming your way in January 2024. That's because Chevron is entering 2024 with a bang, so much so that it has already announced a potential 8% raise in its dividend per share next year.
The thing is, Chevron is about to acquire Hess Corporation in early 2024 in an all-stock deal worth $60 billion. Chevron will not only gain access to assets in the Bakken and Gulf of Mexico after the acquisition, but also own a stake in the Stabroek block in Guyana. Chevron expects the combined company to grow production and free cash flow (FCF) "faster and longer" than Chevron's current five-year guidance -- the oil and gas giant currently expects to grow annual FCF by more than 10% through 2027.
That should also mean bigger returns for Chevron shareholders in terms of both dividends and share repurchases. Chevron has already proven its mettle as a dividend stock and yields a solid 4.2% today. The best part is that its expected upcoming 8% dividend hike next year is already bigger than its average dividend growth over the past five years. In other words, 2024 should set the pace for higher dividend growth at Chevron, making it an even more alluring income stock to own as you step into the new year.
Enbridge just increased its dividend again
Reuben Gregg Brewer (Enbridge): Canadian midstream giant Enbridge announced a modest 3% dividend increase in late November 2023. The dividend has been increased annually for 28 consecutive years, with the latest hike setting up year number 29. Enbridge is a very reliable dividend stock if income consistency is what you are after. The dividend yield is an attractive 7.6%.
Don't be frightened by the elevated yield. The reason the dividend yield is so high is because growth is likely to be modest for the company going forward, meaning that the yield is likely to account for most of your return here. That should be just fine for you if you are looking to maximize the income your portfolio generates. Meanwhile, the dividend is backed by an investment grade rated company with a distributable cash flow payout ratio that's smack dab in the middle of its 60% to 70% target range. Simply put, there's no reason to think the dividend is at any risk.
Enbridge is not exciting. It is a foundational income investment around which you can build a portfolio, perhaps including more dividend growth-oriented stocks. As you look to 2024 -- perhaps you are retiring -- Enbridge is the kind of stock that will let you ring in the new year with a healthy dose of income and without having to take on massive amounts of risk.
A high yield with a high growth rate
Matt DiLallo (MPLX): MPLX provides investors with a supercharged income stream. The master limited partnership (MLP) currently pays a distribution that yields a whopping 9.3%. The midstream company has increased its already massive payout every year since its formation in 2012, including by 10% this year.
That big-time payout is on rock-solid ground. The company generates very stable cash flow backed by long-term contracts with high-quality customers, including its parent, refining giant Marathon Petroleum. The MLP produced over $3.9 billion in cash through the first nine months of the year (up 7% from the year-ago period). That was enough to cover its distribution payments ($2.4 billion) and capital spending ($727 million) with $752 million to spare.
That excess cash helped strengthen its already fortress-like balance sheet. MPLX ended the third quarter with $960 million in cash and a 3.4 times leverage ratio (comfortably below the 4.0 times ratio its stable cash flows can support). That gives it lots of financial flexibility.
MPLX currently has several expansion projects under construction. It's expanding its natural gas and natural gas liquids long haul and crude oil gathering pipelines in the Permian and Bakken basins to support growing production in those regions. It's also expanding its natural gas processing capacity in the Permian and Marcellus basins, driven by producer demand. Its current slate of projects should come online through mid-2025, supplying it with incremental cash flow.
The MLP's growing cash flows will give it more fuel to increase its distribution. Because of that, it should supply investors with a large and growing income stream in 2024 and beyond.
