Energy demand is strong and growing. The world’s energy demand is on pace to grow 15% by 2050. While wind and solar will be meaningful contributors to supplying this incremental energy, they can’t power the world on their own. Because of that, the demand for fossil fuels should continue to rise for at least the next decade.
That future bodes well for energy stocks. In particular, energy infrastructure companies should be able to continue expanding their footprints, which should grow their cash flows and dividends. That makes leaders like Energy Transfer(NYSE: ET), Enterprise Products Partners(NYSE: EPD), and Enbridge(NYSE: ENB) stand out as great stocks to buy for those seeking a high-octane income stream over the coming decade.
Energy Transfer is a leader in the U.S. energy midstream industry. The master limited partnership (MLP) has a nationwide footprint of pipelines, processing plants, storage terminals, and export facilities. Those assets generate stable cash flows backed by long-term contracts and government-regulated rate structures.
The MLP distributes a little more than half of its stable cash flow to investors each year. That income stream currently yields nearly 8%. The company retains the rest of its cash to invest in expansion projects and maintain a strong financial foundation.
Energy Transfer currently has several expansion projects under construction that should come online through 2026. They provide it with lots of near-term visibility into its ability to grow its cash flow and distribution. In addition, the company has several other large-scale projects under development, including Lake Charles LNG, its Blue Marlin oil export terminal, and lower-carbon projects like blue ammonia and carbon capture and sequestration.
The MLP’s strong financial profile and growing backlog of projects fuel its view that it can increase its already massive distribution by 3% to 5% annually in the coming years. That makes it an excellent option for those who are seeking a steadily rising income stream and are comfortable investing in MLPs, which send their investors a Schedule K-1 federal tax form each year.
Enterprise Products Partners is another leading MLP. The company has a remarkable record of consistency. It has increased its distribution payment for 26 straight years.
The MLP currently yields more than 7%. That hefty payout is on a very sustainable foundation. Enterprise Products Partners has a low payout ratio (55% of its adjusted cash flow from operations over the last 12 months) and the strongest balance sheet in the energy midstream sector.
Its financial strength gives it the flexibility to continue investing in expanding its operations while increasing its distribution. Enterprise Products Partners currently has $6.7 billion of major capital projects under construction that should enter service through 2026. That doesn’t include its potentially large-scale SPOT oil export terminal and other lower-carbon projects it has in development. Those and future projects should grow its cash flow, giving the MLP the fuel to continue increasing its distribution.
Enbridge is a North American energy infrastructure leader. The Canadian company operates pipelines and utility businesses that generate stable and growing cash flow. That income supports its high-yielding dividend (currently over 6%).
Enbridge has a massive backlog of commercially secured expansion projects. The company ended the second quarter with 24 billion Canadian dollars ($17.4 billion) of capital projects scheduled to come online through 2028. It recently enhanced and extended its backlog by securing another $700 million of projects that should enter service in 2029. Its projects include oil pipeline expansions, new natural gas pipelines, LNG export capacity, gas utility growth, and renewable energy projects. Meanwhile, it has many more projects under development.
That robust backlog helps drive the company’s view that it can grow its earnings by around 5% annually over the medium term. That should give it the power to continue increasing its dividend. Enbridge has raised its payout for 29 straight years.
The world will need a lot more energy in the future, which will fuel growth for infrastructure companies. Energy Transfer, Enterprise Products Partners, and Enbridge have large, expanding backlogs of projects, giving them increasing visibility into their future growth prospects. Those projects should increase their cash flow as they enter commercial service, giving them the power to continue growing their already high-yielding payouts. That combination of high yields and visible growth makes them great income stocks to buy and hold for the next decade.
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Matt DiLallo has positions in Enbridge, Energy Transfer, and Enterprise Products Partners. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
