These energy companies should be able to continue increasing their attractive dividends.
The world will need more energy in the future. New technologies, population growth, and a growing middle class are increasing the need for more energy. Cleaner sources, such as renewable energy, will provide much of this new generation capacity, but fossil fuels will also continue to play an important role in reinvigorating the global economy.
There are many ways to take advantage of the growing energy demand. Brookfield Renewable (BEP 1.61%) (BEPC 2.25%), Kinder Morgan (KMI 0.52%), and Chevron (CVX -0.30%) stand out as some of the best choices for several Fool.com contributors . All of these energy stocks have increasing dividends, allowing investors to profit from growing energy demand.
High yield and bright future
Reuben Gregg Brewer (Brookfield Renewables): If you like dividends, you’ll love Brookfield Renewables. It comes in two different types: a limited partnership with a yield of 5.3% and a corporate share class with a yield of 4.5%.
The two share classes represent exactly the same entity, and the difference in yield is determined entirely by the popularity of that corporate structure. But what exactly do they represent?
Brookfield Renewable is operated by Brookfield Asset Management and has a portfolio of actively managed renewable power assets. This includes hydroelectric power, solar power, wind power, and batteries. Basically, you can touch on all the important clean energy categories. Its portfolio spans the globe and provides geographic diversification. It’s like a one-stop shop for clean energy.
But importantly, Brookfield Renewable is actively managed. They like to buy assets cheaply, invest in them to increase their value, and sell them when the value increases. Proceeds are returned to new investment opportunities.
This is more like a clean energy hedge fund than a typical energy investment. But with the demand for clean energy rapidly increasing, Brookfield Renewable has a significant path to growth.
For dividend investors who can think outside the typical energy box, it’s worth a deep dive. Notably, the dividend has been increased regularly over the years at an attractive level of around 6% per year over the past 20 years.
step on the accelerator
Matt DiLallo (Kinder Morgan): The country’s natural gas demand is poised to grow rapidly over the next decade. Analysts expect demand to increase by 20 billion cubic feet per day by 2030, up from 108 Bcf/d last year.
Drivers of this demand include natural gas exports (LNG and Mexico) and increased demand for electricity and industry. Additionally, artificial intelligence (AI) data centers require significant amounts of energy and can create significant additional demand. In the base case, demand could increase by 3 Bcf/day to 6 Bcf/day by 2030, with demand increasing by more than 10 Bcf/day.
Few companies are better positioned to take advantage of this opportunity than Kinder Morgan. Major natural gas infrastructure companies already move 40% of the country’s gas production and control 15% of its storage capacity. The company has begun securing projects to expand its capabilities.
For example, the company and its partners recently approved the $3 billion South System Expansion 4 project. The project is expected to add 1.2 Bfc/d of gas capacity to the Southeast when it comes online in 2028. Meanwhile, Kinder Morgan recently approved 570 million cubic meters of gas supply. Expand the Gulf Coast Express pipeline by feet per day. The $455 million project is expected to begin by mid-2026.
The company has more projects in development. These help drive the company’s view that it can grow stable cash flows on a consistent and sustainable basis for many years to come. This should give the company enough leverage to continue increasing its dividend. The dividend has increased for seven consecutive years, and the yield is currently close to 5%.
With strong expansion opportunities and a high-yield, steadily increasing dividend, Kinder Morgan is a great energy stock to buy right now. It is likely to generate above-average total returns over the next few years.
Best Dividend Stocks in the Oil Patch
Neha Chamaria (Chevron): Chevron’s dividend history is among the best in the energy sector. While some oil and gas companies pay regular dividends, Chevron has increased its dividend for more than 35 consecutive years, including an 8% increase announced earlier this year.
The company has also grown its dividend per share over the past five years at a faster compounding annual rate than peers such as ExxonMobil. Over time, Chevron’s dividends have been reinvested and have contributed significantly to shareholder returns.
CVX data by YCharts.
Since Chevron is focused on growing its free cash flow (FCF), shareholders can continue to expect dividend increases from Chevron every year. As such, management expects FCF to grow by more than 10% per year on average through 2027 at a Brent crude oil price of $60/bbl.
Even better, if the oil giant were to acquire Hess, Chevron’s FCF could grow faster, and the deal’s green light from the Federal Trade Commission makes that more likely. It seems so. Chevron has already said it expects production and FCF growth to be faster and longer-term than its current five-year outlook post-acquisition.
Of course, that could mean an even bigger dividend increase for Chevron investors. Given its FCF growth potential and current yield of 4.3%, it appears to be one of the best energy dividend stocks to buy now.
Matt DiLallo holds positions at Brookfield Asset Management, Brookfield Renewable, Brookfield Renewable Partners, Chevron, and Kinder Morgan. Neha Chamaria has no position in any stocks mentioned. Reuben Greg Brewer has no position in any stocks mentioned. The Motley Fool has positions in and recommends Brookfield Asset Management, Brookfield Renewables, Chevron, and Kinder Morgan. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
