The energy sector can be a tough place for income investors. The volatility of energy prices has caused many energy companies to cut their dividends in the past.
However, the energy sector also has several dividend stocks. Three great ones to consider buying in March are Canada’s energy infrastructure giant Enbridge (NYSE: ENB), utility Consolidated Edison (NYSE: ED), and producer of clean energy Clearway Energy (NYSE: CWEN) (NYSE: CWEN.A).
A fully energized dividend
Enbridge has been an exceptional dividend paying stock over the years. The Canadian pipeline operator has increased its dividend in each of the past 26 years. Even more impressive, he increased his payment at a compound annual rate of 10% during that time.
The company expects this streak to continue for the foreseeable future. Enbridge currently plans to increase its cash flow per share by 5% to 7% per year until at least 2023. Fuel this forecast: its ability to improve the returns on its existing assets and continue to expand its energy infrastructure platform. Enbridge currently has billions of dollars in growth projects under construction, including new oil and gas pipelines in the United States and Canada, and several offshore wind farms in Europe. At the same time, it has a large portfolio of investment opportunities to extend its growth prospects in the future; these include projects to participate in the energy transition, such as renewable energy alternative fuel investments and projects.
Enbridge has an excellent financial profile to support its growth, including an investment grade credit rating and a reasonable dividend payout ratio. This makes it likely to continue increasing its dividend, which currently earns 7.5%, over the next several years.
On the way to a crown
Consolidated Edison has an even better dividend history. The New York-area-focused utility has increased its payments for 47 consecutive years. This has him on the verge of joining the elite group of The kings of the dividend.
This crowning seems probable. Consolidated Edison plans to increase its adjusted earnings per share from this year’s level at a compound annual rate of 4% to 6% over the next five years. This outlook is fueled by the expected recovery and growth in the New York City market, as well as Consolidated Edison’s investment to grow its solar power business, which currently ranks second in the country.
The utility has a strong balance sheet and a strong dividend payout ratio to fund these investments, so its dividend, which now pays 4.6%, looks like a great option for income seekers.
A powerful dividend growth plan
Clearway Energy lacks the dividend track record of Enbridge and Consolidated Edison: The clean energy producer had to cut its payment by 40% in 2019 after one of its biggest customers went bankrupt. However, that utility has since reappeared, allowing Clearway to reset its dividend last year. Overall, the company increased the payment by 59% in 2020.
Meanwhile, there is a lot more growth to come for Clearway’s dividend. The company closed or committed $ 880 million of new growth investments in 2020 and continued to seize new opportunities in 2021. Clearway therefore believes that it can increase its dividend from 5% to 8% per year, and is expected to reach the top this year. . It also has a large portfolio of future investment opportunities, thanks to its strategic relationship with a developer of renewable energy projects.
Although Clearway does not have the balance sheet strength of Consolidated or Enbridge, it has been able to find the financing necessary to complete new transactions. It raised $ 1.4 billion in capital last year by leveraging project-level debt, issuing new corporate-level finance and recycling non-core assets. Meanwhile, he recently raised $ 925 million via a low-cost green bond, giving him the cash to refinance existing debt and fund new investments. Clearway’s dividend, with a current yield of 4.6%, is expected to continue to rise over the next several years.
Great ways to boost your passive income
Enbridge, Consolidated Edison and Clearway Energy stand out in the energy sector. They offer above-average dividend yields to investors, and they plan to continue to increase those dividends over the next several years. This means they should produce attractive total returns, making them great options for dividend investors to consider buying in March.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.