These energy companies should be able to continue growing their attractive dividends.
The world will need a lot more energy in the future. New technologies, population growth, and an expanding middle class are all fueling the need for more energy. While cleaner sources like renewables will likely supply much of this new capacity, fossil fuels will also continue playing a vital role in fueling the global economy.
There are many ways to capitalize on the growing need for energy. Brookfield Renewable (BEP 1.61%) (BEPC 2.25%), Kinder Morgan (KMI 0.52%), and Chevron (CVX -0.30%) stand out to a few Fool.com contributors as some of the best options. These energy stocks all pay growing dividends, which will enable investors to cash in on the growing need for energy.
A high yield and a bright future
Reuben Gregg Brewer (Brookfield Renewable): If you like dividends, you’ll love Brookfield Renewable. It comes in two different flavors: a limited partnership with a 5.3% yield and a corporate share class with a 4.5% yield.
The two share classes represent the same exact entity, with the yield difference entirely driven by the popularity of that corporate structure. But what exactly do they represent?
Brookfield Renewable is run by Brookfield Asset Management and owns an actively managed portfolio of renewable power assets. That includes hydroelectric, solar, wind, and batteries. Basically, it gives you exposure to all of the important clean energy categories. Its portfolio is also spread across the globe, providing geographic diversification as well. It’s kind of a one-stop shop for clean energy.
But the key is that Brookfield Renewable is actively managed. It likes to buy assets on the cheap, increase their value by investing in them, and then sell them when they are dear. The proceeds are put back into new investment opportunities.
This is not a typical energy investment, it is more like a clean energy hedge fund. But clean energy demand is growing rapidly, so there’s a huge growth runway for Brookfield Renewable.
It’s worth a deep dive for dividend investors who can think outside the typical energy box. Notably, the payout has been increased regularly for years at an attractive annualized clip of around 6% over that past 20 years.
Stomping on the gas
Matt DiLallo (Kinder Morgan): Natural gas demand in this country is on track to grow briskly into the next decade. Analysts expect that by 2030, the demand will rise by 20 billion cubic feet per day (Bcf/d) from last year’s level of 108 Bcf/d.
Driving this demand are things like natural gas exports (LNG and Mexico) and rising power and industrial demand. On top of that, artificial intelligence (AI) data centers could drive significant additional demand due to their massive energy needs. The base case is that they will add 3 Bcf/d to 6 Bcf/d of incremental demand by 2030, with 10-plus Bcf/d of upside potential.
Few companies are in a better position to capitalize on this opportunity than Kinder Morgan. The leading natural gas infrastructure company already moves 40% of the country’s gas production and controls 15% of its storage capacity. It has started securing projects to expand its capacity.
For example, the company and its partner recently approved the $3 billion South System Expansion 4 project, which will add 1.2 Bfc/d of gas capacity in the Southeast when it comes on line in 2028. Meanwhile, Kinder Morgan recently approved a 570 million cubic feet per day expansion of its Gulf Coast Express pipeline. The $455 million project will enter service by the middle of 2026.
The company has many more projects under development. They help drive its view that it can grow its stable cash flows on a consistent and sustainable basis for many years to come. That should give the company plenty of power to continue increasing its dividend. It has grown its payout, which currently yields nearly 5%, for seven straight years.
With a robust opportunity to expand and a high-yielding and steadily rising dividend, Kinder Morgan is an excellent energy stock to buy right now. It has a high probability of producing above-average total returns in the coming years.
A top dividend stock in the oil patch
Neha Chamaria (Chevron): Chevron’s dividend track record is among the best in the energy sector. While several oil and gas companies pay regular dividends, Chevron has increased its dividend for more than 35 consecutive years, including an 8% dividend raise announced earlier this year.
The company has also grown its dividend per share at a faster compound annual rate than peers like ExxonMobil in the past five years. Over time, Chevron’s dividends, when reinvested, have contributed significantly to shareholder returns.
CVX data by YCharts.
Shareholders can continue to expect bigger dividends from Chevron year after year, thanks to the company’s focus on growing its free cash flows (FCF). So through 2027, management expects its FCF to grow at an average annual clip of more than 10% at a Brent crude oil price of $60 per barrel.
Even better, Chevron’s FCF could grow faster if the oil giant acquires Hess, which seems more likely now that the deal has received the green light from the Federal Trade Commission. Chevron has already stated that it expects its production and FCF to grow faster and longer than its current five-year guidance after the acquisition.
That, of course, could also mean bigger dividend raises for Chevron investors. Given FCF growth potential and a current yield of 4.3%, it looks like one of the best energy dividend stocks to buy now.
Matt DiLallo has positions in Brookfield Asset Management, Brookfield Renewable, Brookfield Renewable Partners, Chevron, and Kinder Morgan. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Brookfield Asset Management, Brookfield Renewable, Chevron, and Kinder Morgan. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
