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3 High Yielding Energy Stocks to Earn Passive Income for Years

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The energy industry is a great place to collect passive income. The sector currently offers the highest dividend yield in the S&P500 close to 4%, well above the index average of around 1.5%. For this reason, income-oriented investors have many options.

Three energy stocks that stand out for their ability to generate sustainable passive income are Brookfield Infrastructure (BIPC -0.98%) (BEEP 1.36%), Clearway Energy (CWEN -4.66%) (CWEN.A)and Williams Enterprises (WMB -0.88%). Here’s a closer look at why income-focused investors should consider this trio.

1. Sustained growth should continue

Brookfield Infrastructure has been an exceptional passive income generator over the years. The global infrastructure operator declared its 13th consecutive year of increasing its payment in 2022, growing it at a compound annual rate of 10% during this period. It currently offers a dividend yield of 2.9%, nearly double that of an S&P 500 index fund.

Brookfield should be able to continue to grow its lucrative revenue stream in the future. The company operates a diversified portfolio of infrastructure businesses in the utilities, midstream energy, transportation and data sectors. They generate recurring cash flows supported by long-term contracts and government-regulated fee structures. Meanwhile, Brookfield pays around 60% to 70% of that income to shareholders through its high-yield dividend. This gives it some cushion while allowing it to keep some of the profits to fund its continued expansion.

Brookfield estimates that it can organically increase its cash flow per share by 6% to 9% per year through inflationary price increases, increased volumes as the economy grows and expansion projects . Additionally, it sees its capital recycling program – selling mature assets to invest in higher yielding opportunities – adding to its bottom line. This should support the company’s plan to increase its dividend by 5-9% per year.

2. Future high-end growth

Clearway Energy is currently offering a 3.5% dividend. The company has steadily increased this payment in recent years. It plans to increase it towards the upper end of its annual target range of 5% to 8% through 2026.

The main factor behind this high-end growth is the recent sale of the company’s thermal assets. It received $1.46 billion in net proceeds, which it plans to allocate to clean, cash-generating power assets in future years. The company has agreements to put more than half of these profits to work. For example, it recently agreed to invest $100 million to $130 million to acquire a portfolio of wind assets from a third-party seller. Combined with other recent deals, it aims to increase its cash available for distribution from $365 million this year to $400 million when those deals close.

During this time, the company strives to invest the remaining proceeds at attractive returns. Its success in doing so could boost its cash flow to over $440 million in the future.

This should not be a problem to continue to find attractive opportunities, given the amount of investment needed to transition the economy to renewable energy. It also has strategic relationships with a renewable energy project developer, a global infrastructure investor and a major energy company, each of which can provide it with investment opportunities.

3. Lots of fuel to keep growing

Williams Companies has been paying dividends to its shareholders since 1974. It has steadily increased its payout since resetting in 2016 to conserve more cash to expand operations and strengthen its balance sheet. natural gas pipeline the giant’s payout currently yields 4.8%.

The company currently generates enough cash to cover that payment more than twice, giving it a significant cushion. This allows it to fully fund its expansion program and pay off its debt, putting its payment on an even more sustainable footing.

Williams Companies has several growth engines that should provide it with more cash flow to increase its dividend going forward. Its natural gas transmission business alone is growing by leaps and bounds, driven by growing demand for cleaner fuels. Williams is investing $1.5 billion in five projects and has another 30 projects worth up to $7 billion in future development investment potential. This pipeline could drive growth over the next decade. Additionally, it is expanding its gas gathering business and position in the Gulf of Mexico and shifting to low-carbon energy. With multiple growth drivers and an improved financial position, Williams’ dividend looks more sustainable than ever.

Sustainable revenue streams

Brookfield Infrastructure, Clearway Energy and Williams Companies deliver high-yield payouts built on enduring foundations. All three energy companies produce recurring cash flow and have strong financial profiles, giving them the flexibility to continue to grow their businesses. This growing cash flow should allow them to continue to increase their dividends, making them excellent passive income stocks to hold for the long term.

Matthew DiLallo holds positions at Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners and Clearway Energy, Inc. The Motley Fool recommends Brookfield Infra Partners LP Units, Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.