Cash flows across the energy sector tend to be more variable due to commodity price volatility. However, some energy stocks just print money because their business models have minimal direct exposure to commodity prices. That gives them the cash to pay lucrative dividends.
Energy Transfer (ET -0.42%), Kinder Morgan (KMI 1.58%), and Williams (WMB 2.32%) operate money-printing energy midstream assets. Because of that, they're ideal options for investors seeking to generate passive income.
Image source: Getty Images.
Revving up the money printer
Energy Transfer operates a nationwide footprint of crucial midstream assets. Its more than 130,000-mile pipeline network moves oil, natural gas, and other commodities from production basins to market centers in the U.S. and beyond through its export terminals. Fee-based contracts and government-regulated rate structures support 90% of its earnings. Because of that, the master limited partnership (MLP) prints cash.
The midstream giant generated more than $2.3 billion in distributable cash flow during the first quarter and distributed about $1.1 billion of that money to investors. Energy Transfer used its retained cash flow to invest in expansion projects ($945 million of growth capital spending) and maintain its strong balance sheet.
The MLP is investing heavily to expand its already massive midstream footprint. It's spending $5 billion on growth projects this year, which are expected to come online through the end of next year. That should drive a meaningful uptick in its stable cash flows in 2026 and 2027. Energy Transfer's growing sources of stable cash flow should enable the MLP to continue increasing its distribution. It's aiming to raise its more than 7%-yielding payout by 3% to 5% per year.
Extremely durable cash flows
Kinder Morgan owns an irreplaceable energy infrastructure portfolio. It operates one of the largest natural gas pipeline networks in the country and is a leader in handling refined petroleum products and transporting carbon dioxide.
Take-or-pay contracts, which entitled Kinder Morgan to payment regardless of volumes or prices, back 64% of the company's cash flow. Meanwhile, hedging contracts that guarantee prices lock in another 5% of its cash flow. Kinder Morgan also gets 26% of its earnings from fee-based sources, most of which have minimal exposure to volume fluctuations. As a result, the company's assets pump out a lot of stable cash flow each quarter.
Kinder Morgan generated $1.2 billion in cash flow from operations during the first quarter, covering its dividend outlay of $642 million by roughly 2 times. That enabled it to retain meaningful excess free cash flow to fund expansion projects. The pipeline giant currently has $8.8 billion worth of expansion projects under construction, which are expected to enter commercial service through 2030. They will grow the company's sources of stable cash flow, which should enable it to continue increasing its more than 4%-yielding dividend.
Cashing in on gas
Williams operates one of the country's largest natural gas infrastructure platforms. It owns key interstate pipelines (including the Transco system that supplies gas to major markets along the East Coast). It also has gathering and processing (G&P) operations in key production basins, as well as other related infrastructure.
Highly regulated transmission and deepwater assets account for 48% of Williams' cash flow, giving it a very stable foundation. Meanwhile, fee-based G&P assets supply it with another 43% of its cash flow. Williams also layers in hedges to backstop its more price-sensitive assets.
The gas infrastructure company generated nearly $1.5 billion in available funds from operations during the first quarter. That covered its more than 3%-yielding dividend by a super comfy 2.4 times. Williams' lower dividend payout ratio enabled it to retain lots of cash to fund expansion projects and maintain its financial flexibility.
Williams is working on a huge slate of growth projects. It has several projects underway to expand Transco and its other gas transmission pipelines, and it's connecting new deepwater projects in the Gulf to its infrastructure. Williams is also building a natural gas power plant to support the rising power demand of AI data centers. These projects will fuel cash-flow growth through 2030, giving Williams more power to increase its dividend.
Cash-flow machines
Energy midstream companies like Energy Transfer, Kinder Morgan, and Williams primarily operate fee-based assets that print cash. Because of that, these energy infrastructure companies can pay attractive and growing dividends. That makes them ideal options for investors seeking stable and steadily rising passive income streams.
