Nearly everything in the world runs on energy, from the gas you put into your car to the massive data centers powering artificial intelligence. But the energy industry can be volatile at times.
Still, some companies have proved their ability to navigate the chaos and reward their shareholders with generous dividends that continue to increase over time.
Which energy stocks should investors look at? Consider leading companies involved in renewable energy, oil and natural gas, and pipelines. The following three stocks are leaders in their respective fields and are poised to continue delivering generous and increasing dividends for years to come.
You can buy shares of all three for well under $2,000, making them possibly the smartest dividend stocks to buy right now.
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1. NextEra Energy
Renewable energy created from wind and solar continues to grow, and NextEra Energy (NEE 0.61%) is a no-brainer as the world's largest producer of renewable energy. The company also operates the largest electric utility in the United States, Florida Power & Light, and its stock has outperformed the S&P 500 since 1990.
NextEra Energy has paid and raised its dividend for 30 consecutive years, and has a strong 3% starting yield at its current share price.
There should be plenty of opportunities for the company. Grand View Research estimates that the global renewable energy market will continue to expand at an annualized rate of over 17% through 2030. The company is investing over $100 billion in energy infrastructure over the next few years to help meet high demand.
Management anticipates earnings rising by an average of 6% to 8% annually through at least 2027, which should continue to drive solid dividend growth.
The stock currently trades at a forward price-to-earnings ratio of about 20, which isn't a bargain for a company growing by the mid to high single digits. However, I would argue it's a fair price considering the long runway renewable energy could still have ahead. Investors who buy, hold, and reinvest the dividends should do well over the long haul.
2. Chevron
As one of the world's largest integrated oil and gas companies, Chevron (CVX 0.53%) drills for, refines, and sells oil and gas. The company has demonstrated its ability to withstand occasional downturns in the energy market with a dividend growth streak that has now lasted 37 years.
It should be especially appealing to income-focused investors with its current 4.7% starting yield, backed by an investment-grade balance sheet.
The company is currently trying to acquire Hess for $53 billion in an all-stock deal. The purchase would grant it ownership of a 30% stake in resource-rich assets in offshore Guyana.
However, ExxonMobil has challenged the deal on the basis that it has the right of first refusal due to its existing agreements in the region. An arbitration panel is reviewing the case and might announce a decision sometime this year.
Investors typically dislike uncertainty, so such an unknown can weigh on Chevron's stock. But if the Hess acquisition falls through, the company will likely explore alternatives. So this shouldn't necessarily deter investors who want to buy, hold, and collect the company's generous dividend.
3. Kinder Morgan
Natural gas demand is strong, boding well for Kinder Morgan (KMI 1.20%). The pipeline company operates a network of over 66,000 miles of pipelines and storage facilities that help transport approximately 40% of U.S. natural gas production.
Pipelines generate most of their revenue from fixed fees, so Kinder Morgan isn't nearly as susceptible to fluctuations in commodity prices as most other oil and gas companies are.
It has a strong 4.2% starting dividend yield at its current price, and management has increased the payout for seven consecutive years. The company is anticipating a 10% earnings increase this year, and analysts forecast around 7% annualized growth over the next three to five years. Therefore, the dividend should continue to march higher.
Most of the natural gas demand growth is forecast to come from the Texas and Louisiana Gulf Coast. The company is based in Texas and has a significant presence in the region, and is aggressively expanding.
So investors can reasonably expect Kinder Morgan to remain a dynamic combination of dividend yield and growth for the foreseeable future, making it a compelling choice to buy and hold.
