The energy sector can be a great source of dividend income. Many energy companies pay lucrative dividends backed by strong financial profiles.
For example, $2,000 invested in each of the energy dividend stocks shown in the table below would generate more than $300 of passive dividend income each year:
|
Dividend Stock |
Investment |
Current Yield |
Annual Dividend Income |
|---|---|---|---|
|
$2,000.00 |
5.52% |
$110.40 |
|
|
Energy Transfer (ET 0.03%) |
$2,000.00 |
7.39% |
$147.80 |
|
ConocoPhillips (COP -0.70%) |
$2,000.00 |
3.26% |
$65.20 |
|
Total |
$6,000.00 |
5.39% |
$323.40 |
Data source: Google Finance and author's calculations. Note: Dividend yields as of July 25, 2025.
Here's a closer look at what makes these energy stocks excellent sources of passive income.
Image source: Getty Images.
Clearway Energy
Clearway Energy is a major U.S. clean power producer with a portfolio that includes wind, solar, storage, and natural gas assets. It sells its electricity under long-term power purchase agreements, which provide steady sources of cash flow for its high-yield dividend.
The company generates a growing amount of excess free cash flow after paying dividends, which it reinvests in new income-generating clean power assets. Clearway's current slate of renewable energy investments has it on track to grow its cash available for dividends from $2.08 per share this year to more than $2.50 per share by 2027. The growing cash flow should support dividend growth of 5% to 8% annually.
Given the robust demand for renewable energy, Clearway has a clear path to continue growing its cash flow and dividends within that target range well beyond 2027.
Energy Transfer
Energy Transfer is a leading energy infrastructure company. It focuses on gathering, processing, transporting, storing, and exporting hydrocarbons. The company's midstream operations generate fairly stable cash flow, as 90% of its earnings come from predictable fee-based sources. The master limited partnership (MLP), which sends investors a Schedule K-1 Federal Tax Form each year, distributes about half its stable cash flow to investors.
The midstream giant uses its retained cash flow to invest in organic expansion projects and make accretive acquisitions. Energy Transfer expects to invest about $5 billion this year across new gas processing plants, additional export capacity, and a major new gas pipeline.
These projects will provide incremental cash flow as they enter service over the next two years, supporting the MLP's plan to increase its distribution by around 3% to 5% per year. Energy Transfer also has additional expansion projects in development and ample financial capacity to make acquisitions as opportunities arise, supporting its continued growth.
ConocoPhillips
ConocoPhillips is one of the country's largest and lowest-cost oil and gas producers. It has built a deep, durable, and diversified portfolio with decades of inventory, boasting a cost of supply below $40 a barrel. With crude oil currently in the upper $60s, ConocoPhillips is generating a lot of free cash flow.
The oil giant is entering a multiyear free-cash-flow growth cycle. ConocoPhillips' investments in expanding its production in Alaska and its global liquefied natural gas (LNG) business have it on track to deliver $6 billion of incremental free cash flow through 2029, giving it a sector-leading free-cash-flow growth profile. That growing free cash flow should enable the company to achieve its target of delivering dividend growth in the top 25% of companies in the S&P 500.
Income-producing machines
Clearway Energy, Energy Transfer, and ConocoPhillips generate significant cash flow, which they use to pay dividends and invest in expanding their operations. These growth investments increase their cash flow, enabling them to raise their already lucrative dividend payments. Their combination of yield and growth makes these energy stocks top buys for those seeking to generate substantial passive dividend income each year.
