The energy sector can be a great source of durable passive income if you know where to look. While commodity price volatility can affect the cash flows of many energy companies, others have business models designed to mute the impact of that volatility on their earnings, so they can generate steadier cash flow to help support their growing dividends.
Enbridge (NYSE: ENB) and Brookfield Renewable (NYSE: BEPC)(NYSE: BEP) have been dividend stalwarts in the energy sector over the decades. They're in strong positions to continue paying high-yielding and steadily rising dividends in the future. That makes them great energy stocks to buy for passive income right now.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »
Ample fuel to continue growing its payout
Enbridge has paid dividends for more than 70 years. This will mark the 30th consecutive year it has increased its dividend. Enbridge has grown its payout at a 9% compound annual rate over the past three decades, including 3.1% this year. The Canadian pipeline and utility company's dividend currently yields an attractive 5.9%.
The energy company backs its high-yielding payout with a very low-risk financial profile. About 98% of the company's earnings come from stable cost-of-service or contracted assets. Meanwhile, the company pays a reasonable 60% to 70% of its stable cash flow in dividends. Enbridge also has a strong investment-grade balance sheet with a leverage ratio trending toward the low end of its target range.
The company's conservative financial profile puts its dividend on a very sustainable foundation. It also provides Enbridge with lots of financial flexibility to expand its energy infrastructure operations. It currently has a multibillion-dollar backlog of commercially secured capital projects under construction that should enter service through 2029. These projects primarily support lower carbon energy, like new natural gas pipelines, natural gas utility expansions, and renewable energy projects.
That backlog provides Enbridge with lots of visibility into its growth potential. It expects to grow its cash flow per share at a 3% compound annual rate through 2026 and by around 5% per year after that. This growth should support dividend increases in the 3% to 5% annual range.
Powerful growth drivers
Brookfield Renewable has grown its dividend by a 6% compound annual rate since 2001. Meanwhile, this year marked the 14th straight year that Brookfield Renewable has increased its dividend by at least 5%. The leading global renewable energy producer's dividend currently yields 5.5%.
That high-yielding payout is also on a very sustainable foundation. Brookfield Renewable produces very stable cash flow because it sells the bulk of the power it produces under long-term power purchase agreements (PPAs) with utilities and large corporate customers. Since most of those PPAs link rates to inflation, its large power generation portfolio produces stable and growing cash flow of about 2% to 3% annually.
Inflation-linked rate increases are only one growth driver. Brookfield also expects to capture higher market rates for electricity as its existing PPAs expire. Margin enhancement activities like that should add another 2% to 4% to its cash flow per share each year.
On top of that, Brookfield is investing heavily in developing additional renewable energy capacity. It has a staggering 200 gigawatts (GW) of projects in its development pipeline, more than four times its current operating capacity of 46 GW. The company expects to ramp up its development capabilities from 7 GW last year to 10 GW annually by 2027. These projects should add 4% to 6% to its cash flow per share each year.
Finally, Brookfield has a long track record of making accretive acquisitions. The company and its partners deployed or committed to deploy a record $12.5 billion -- $1.8 billion net to Brookfield -- into new businesses last year. It has ample liquidity to continue making new investments as opportunities arise.
Brookfield believes its growth drivers will power more than 10% annual cash flow per share growth for the next decade. That should enable it to continue growing its dividend in the 5% to 9% annual range.
Top-tier energy dividend stocks
Enbridge and Brookfield Renewable have proven the durability of their dividends over the decades. The companies produce very stable cash flow and have conservative financial profiles, which puts their high-yielding dividends on rock-solid ground. With lots of financial flexibility to capitalize on the abundance of opportunities to continue expanding their operations, they should be able to continue increasing their high-yielding dividends in the decades ahead. That makes them ideal passive income stocks to buy and hold for the long haul.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $350,809!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $45,792!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $562,853!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of February 3, 2025
Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, and Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
