The energy sector can be a great place for investors to collect a lucrative passive income stream. Many energy companies generate lots of excess cash flow, giving them the money to pay hefty dividends. Several companies in the sector also have long dividend growth streaks.
TotalEnergies (TTE +0.00%), Chevron (CVX +0.02%), and Brookfield Renewable (BEPC 0.22%)(BEP 0.13%) stand out to a few Fool.com contributors as excellent energy stocks to buy for passive income. They pay high-yielding and steadily rising dividends. Here's a look at why they could deliver years of passive income.
TotalEnergies is acting now so it can thrive through the transition
NYSE: TTE
Key Data Points
Reuben Gregg Brewer (TotalEnergies): For most investors, the best way to invest in the energy sector will be to buy an integrated energy company. That's because these businesses have exposure to the entire industry, from the upstream (drilling) through the midstream (pipelines) and into the downstream (chemical and refining). This diversification helps to soften the peaks and valleys of an industry that is known for being volatile. But all of the major integrated energy companies are a little different, with TotalEnergies standing out in a very important way.
In 2020, European peers BP and Shell cut their dividends as they announced plans to increase investment in clean energy assets. TotalEnergies made the same commitment but maintained its dividend. Since that point, both BP and Shell have walked back their clean energy plans. TotalEnergies has increased the pace of its investment in electricity and even created a new division so investors could more easily monitor its progress. The new integrated power division grew operating income 17% in 2024.
Simply put, TotalEnergies is a well run oil and gas company and, increasingly, a well-run clean energy company, too. If you want years of passive income, the French energy giant is positioning itself to not just weather the clean energy transition but also to thrive as the world increases its use of non-carbon fuels. And you can collect a dividend yield of 6%, higher than all but one of its closest peers, if you buy it today. (Note that U.S. investors have to pay French taxes on the dividends they receive, a portion of which can be claimed back when filing U.S. taxes.)
Stress-tested to thrive on lower oil prices
NYSE: CVX
Key Data Points
Matt DiLallo (Chevron): Chevron's dividend yield is approaching 5%. That's due to a nearly 20% decline in the oil company's stock price from its recent peak. Shares of the oil giant have sold off because of lower crude prices this year. The price of Brent crude, the global oil benchmark, has fallen more than 10% to around $65 a barrel because of fears that tariffs could slow economic growth and reduce oil demand.
While lower oil prices will have an impact on Chevron's cash flow, they won't affect its ability to continue increasing its high-yielding dividend. The oil giant has stress-tested its business for a downside scenario where Brent averages just $50 a barrel from 2025 through 2027. Under that scenario, Chevron would produce enough cash to cover its investment program and pay a growing dividend with room to spare. Meanwhile, it would have the capacity to buy back shares at the low end of its $10 billion to $20 billion annual target range thanks to its strong balance sheet.
Chevron is on pace to add $9 billion to $10 billion to its annual free cash flow by 2026 in an environment where Brent is in the $60- to $70-a-barrel range. That would enable the company to buy back shares toward the upper end of its target range at the current price point. On top of that, there's additional upside if the company closes its needle-moving acquisition of Hess, which would more than double its free cash flow by 2027 at $70 oil.
Chevron's low-cost production, visible upside catalysts, and strong balance sheet put it in an excellent position to continue increasing its dividend, which it has done for 38 straight years. The oil company has grown its payout faster than the S&P 500 and its closest peer over the past five years. These factors suggest that an investment in Chevron will create a lot of passive income over the years to come.
Riding the renewable energy boom to reward investors
NYSE: BEPC
Key Data Points
Neha Chamaria (Brookfield Renewable): Brookfield Renewable is one of the largest publicly traded renewable energy companies in the world with a massive portfolio spanning hydropower, wind, solar, and distributed energy and storage. The company also has a large global footprint and is embarking on a big growth journey that should drive its cash flows and dividends higher in the coming years.
To put some numbers to that, Brookfield Renewable is planning to invest $8 billion to $9 billion over the next five years and expects to grow its funds from operations (FFO) per unit by over 10% annually in the long term. That's not an overly ambitious goal if you think it is, simply because almost 6% growth could already be embedded in the company's development pipeline and inflation escalation clauses in its long-term contracts. For those in the know, Brookfield Renewable sells electricity under long-term contracts, and almost 90% of its cash flows are contracted for an average of 14 years.
That also makes Brookfield Renewable's cash flows highly stable and predictable, which is why management has been able to set a goal of increasing its dividend annually by 5% to 9% in the long term. Even a 5% annual dividend growth could create years of passive income for investors if they reinvest the dividends. Investors who own the corporate shares of Brookfield Renewable also get to enjoy a high 5%-plus dividend yield now.
