The energy sector can be a challenge for investors. Energy prices are notoriously volatile, which impacts the sector’s ability to generate consistent earnings and dividend growth. Many energy companies have had to cut or suspend dividends during tough times to stay afloat.
For this reason, energy companies that have seen steady growth tend to stand out in the industry. However, some high-quality energy stocks continue to fly under most investors’ radar. Two incredibly productive energy companies that few investors talk about are Consolidated Edison (ED 1.77%) and Delek logistics partners (DKL 5.31%).
1. Little known outside his region
Unless you live in New York, you’re probably not very familiar with Consolidated Edison or Con Edison. The utility provides electric and natural gas distribution services to customers in New York and surrounding areas. The company doesn’t get enough credit for its remarkable consistency over the years.
Con Edison has increased its dividend for 48 consecutive years. This is the longest period of any usefulness in the S&P500 index. He calls Con Edison a Dividend Aristocrat and has it only a few years away from the even more elite group of Dividend Kings. The company currently has a 3.5% dividend yieldmore than double the rate of the S&P 500 and above some of the most popular utilities.
Several factors contributed to Con Edison’s remarkable dividend success. For starters, the company has maintained a strong financial profile, including a conservative dividend payout ratio target of 60% to 70% of its adjusted earnings. It also has a strong Investment Grade rated balance sheet. These factors give it the financial flexibility it needs to continue expanding its utility business.
Con Edison is investing heavily to reduce its carbon emissions while supporting New York’s growing energy demand. It plans to invest $15.7 billion through 2024 in green power, security and reliability projects, which should help fuel continued earnings and dividend growth for utility investors.
2. A hidden gem for income investors
Delek Logistics Partners is a little-known Master Limited Partnership (MLP). Small independent refiner Delek US (DK -1.77%) formed the MLP to own, operate, acquire and construct midstream assets to support its operations. This strategy was a resounding success. Delek Logistics Partners has increased its distribution for 37 consecutive quarters, which is every quarter since its inception in 2012. It offers an even more attractive yield which is currently over 8%, well above the level of some of the most popular MLPs .
MLP’s steady distribution growth has been fueled by a steady stream of acquisitions and expansion plans to support its parent company’s refining operations. Delek US has steadily sold its logistics assets to its MLP over the years, growing its portfolio of cash flow midstream businesses. In the meantime, MLP has invested capital to increase its ability to support the growth of its parent company.
Delek Logistics has also diversified beyond the support of its parent company by acquiring related assets from third parties. The MLP recently acquired 3Bear Energy for $624.7 million. The crude oil and gas gathering, processing and transportation business has grown in size while diversifying its revenue and product mix. It should also give MLP the fuel it needs to continue to grow its distribution. Delek Logistics plans to increase its payment by another 5% this year.
Even after this large-scale transaction closes, MLP has plenty of fuel to continue growing. It still has a strong balance sheet and a conservative payout coverage ratio. Meanwhile, Delek US still has midstream assets that it can surrender to its MLP in the future.
Incredible dividend growth
Energy stocks are not always in constant growth due to the volatility of the sector. This is why Con Edison and Delek Logistics Partners stand out as they have seen steady dividend growth for years. Despite this remarkable consistency, most investors don’t talk about it these days. For this reason, they do not trade at high prices like some peers, allowing them to offer attractive dividend yields.