These energy stocks can produce prodigious amounts of passive income over the next 10 years.
The average dividend stock currently yields less than 1.5% based on the S&P 500‘s dividend yield. That’s well below the historical average of more than 4% over the long term because many companies have deemphasized dividends in recent years.
However, there are some hotbeds for those seeking high-dividend yields. Several energy stocks have plenty of fuel to grow their high-octane dividends in the decade to come. Enbridge (ENB -0.32%) and Clearway Energy (CWEN.A -0.84%) (CWEN -0.79%) are among the dividend standouts in the sector, with payouts yielding more than 5%. They expect to increase those big-time dividends for years to come. That makes them great income stocks to buy and hold for the next decade.
A dividend-paying machine
Enbridge has been one of the energy sectors’ best dividend stock over the decades. The Canadian pipeline and utility company has paid dividends for over 69 years and increased its payment for the last 29 years in a row. It should have plenty of fuel to continue paying dividends in the decade ahead.
Powering that view is the remarkable predictability and durability of its earnings. Enbridge has achieved its financial guidance for 18 straight years. That includes two major recessions and two additional periods of oil-market turbulence. Driving its predictability is the stability of its earnings, with 98% coming from cost-of-service or contracted assets. Meanwhile, more than 95% of its earnings come from customers with investment-grade ratings, while 80% of its earnings have inflation protections.
Enbridge pays out 60% to 70% of its very stable cash flow in dividends. That payout currently yields more than 6.5%. The company’s conservative payout ratio provides it with lots of breathing room while enabling it to retain billions of dollars in cash each year to fund its continued expansion.
The company currently has billions of dollars of secured capital projects in its backlog, with most focused on lower-carbon energy, like new natural gas pipelines, gas-utility expansions, and renewable-energy projects. It expects to complete these projects by 2028, giving it lots of visibility into future-earnings growth. Meanwhile, it has many more expansion projects under development that could extend its growth outlook further into the future. They help support Enbridge’s view that it can grow its earnings by around 5% annually for the foreseeable future. That should give the company the fuel to continue increasing its dividend by up to that same annual rate.
A fully powered growth plan in the near term with more to come
Clearway Energy is a leading renewable energy producer. It also generates power from a portfolio of environmentally sound natural gas-fired power plants. These assets generate very predictable cash flow, which it uses to pay dividends. Clearway’s payout currently yields more than 5.5%.
The company has tremendous near-term visibility into its ability to grow that payout. It expects to expand the dividend toward the upper end of its 5% to 8% target range through 2026.
Powering that plan is its capital-recycling strategy. Clearway cashed in on the value of its thermal-energy assets a few years ago. It has been steadily deploying the proceeds into higher-returning renewable-energy investments. The company has now fully committed the entire amount, giving it a clear line of sight into its ability to grow its cash flow (and dividend) for the next couple of years.
Clearway should have plenty of fuel to continue growing beyond 2026. It has already started locking in new power-sales contracts on its natural gas plants. Rates are coming in high enough to support dividend growth toward the low end of its target range in 2027 on this factor alone. Meanwhile, it should have ample opportunities to continue making new renewable-energy investments, given the unprecedented need for new capacity in the future.
Ample fuel to pay dividends
Enbridge and Clearway Energy currently offer big-time dividend yields. They back those payouts with very stable cash flow. The duo also has lots of growth ahead as energy demand grows, especially for lower-carbon energy. Because of that, they’re great stocks to buy and hold for the next decade since they should have the fuel to pay and grow their dividends for years to come.
Matt DiLallo has positions in Clearway Energy and Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
