The energy sector can be a great spot to shop for dividend stocks. Many energy companies generate lots of cash flow, even during periods of commodity price volatility. That gives them the funds to pay lucrative dividends while investing to grow their operations.
Brookfield Renewable (BEPC +3.29%)(BEP +1.64%), ConocoPhillips (COP 0.35%), and Energy Transfer (ET +0.53%) are my top three energy dividend stocks to buy right now. Here's what makes them such attractive income options.
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Powerful income growth
Brookfield Renewable is one of the largest renewable energy producers in the world. The company has a global business spanning hydro, wind, solar, and energy storage. It sells the power it produces under long-term power purchase agreements (PPAs) with utilities and large corporate customers, most of which link rates to inflation. As a result, Brookfield generates stable and steadily rising cash flow to support its nearly 5% yielding dividend.
The company has grown its payout at a 6% compound annual rate since 2001. It expects to increase its dividend by 5% to 9% per year in the future. Brookfield should have plenty of power to achieve dividend growth within that target range.
NYSE: BEPC
Key Data Points
Inflation-linked PPAs should add 2%-3% to its funds from operations (FFO) per share each year. On top of that, Brookfield expects margin enhancement activities such as securing higher market rates as legacy PPAs expire to add another 2% to 4% to its FFO per share each year. Meanwhile, the company has a large pipeline of renewable energy projects, which should boost its FFO per share by another 4% to 6% each year. Brookfield also has the financial flexibility to make accretive acquisitions, which it anticipates will help push its FFO per-share growth rate above 10% annually.
A low-cost, cash-gushing oil company
ConocoPhillips has built one of the world's lowest-cost oil and gas producers. CEO Ryan Lance noted on the company's first-quarter earnings conference call in early May: "We have a deep, durable, and diverse portfolio. We have decades of inventory below our $40 per barrel WTI [West Texas Intermediate] cost-to-supply threshold, both in the U.S. and internationally." The company also has a disciplined capital allocation framework that Lance said is "battle-tested through the cycles." On top of that, it has an A-rated balance sheet, giving it tremendous financial flexibility.
NYSE: COP
Key Data Points
Those factors put its dividend (which yields more than 3% right now) on a rock-solid foundation. ConocoPhillips has been growing its payout at a well-above-average rate, which it expects will continue. It aims to deliver dividend growth within the top 25% of companies in the S&P 500 in the future.
Fueling that growth is its combination of short-cycle development (U.S. shale) and long-cycle investments (Alaska and LNG). ConocoPhillips expects those long-cycle investments to fuel an incremental $6 billion in annual free cash flow by 2029, putting it on track to deliver sector-leading growth.
A passive-income juggernaut
Energy Transfer operates one of the country's largest energy midstream businesses. It transports, processes, stores, and exports various hydrocarbons. Most of its assets generate predictable fee-based cash flow (roughly 90% of its earnings).
NYSE: ET
Key Data Points
The master limited partnership (MLP), which sends investors a Schedule K-1 Federal Tax Form each year, so investors need to be comfortable with the extra paperwork,, distributes about half its stable cash flow to investors via a payout that currently yields more than 7%. It retains the rest to fund growth projects and maintain its financial flexibility.
Energy Transfer is investing $5 billion into growth capital projects this year. Most of those projects will enter commercial service by the end of next year, fueling incremental earnings growth in 2026 and 2027. The MLP has several more expansion projects under development. It also has a long history of making accretive acquisitions. Its growth investments fuel the view that it can increase its high-yielding payout at a 3% to 5% annual rate in the coming years.
Ample fuel to pay growing dividends
Brookfield Renewable, ConocoPhillips, and Energy Transfer generate lots of cash flow. That gives them the funds to pay above-average dividends that they steadily grow. That combination of income and growth is why they're my top dividend stocks to buy in the sector.
