The energy sector hasn’t been the most rewarding this year. The S&P 500 Energy Sector SPDR ETF (XLE) shows a modest 2.3% gain year-to-date, compared to the broader market's impressive 20.2% rise. Lower oil and gas prices, along with economic uncertainty, have held back the sector's performance.
Despite this, some energy stocks stand out for delivering steady returns to shareholders through generous dividend payments. Many of these stocks offer attractive yields of over 6%, making them appealing, especially in an environment where interest rates are expected to decline.
Enbridge (ENB) and Energy Transfer (ET) are among the energy sector's top dividend stocks, offering yields of over 6%. These companies also have a history of consistently increasing dividends over the years.
Let’s take a closer look at their distributions, and understand why they are top stocks for recurring income.
Energy Dividend Stock #1: Enbridge (ENB)
Enbridge (ENB) has a solid dividend track record. For over 69 years, Enbridge has consistently rewarded its shareholders with regular dividend payments. Moreover, ENB raised its dividends at a CAGR of 10% over the past 29 years. This makes Enbridge an attractive option for investors seeking a growing dividend income stream.
Enbridge's extensive operations include the transportation and export of crude oil (CLX24), liquid hydrocarbons, and natural gas (NGV24) utility services. Additionally, Enbridge has made significant investments in renewable energy assets, including wind, solar, and waste heat recovery projects across North America and Europe.
Thanks to its diversified portfolio, which includes traditional energy sources, low-risk utility-like projects, and renewables, the company continues to generate resilient cash flows through various commodity and economic cycles.
Further, Enbridge’s dividend payout ratio, targeted between 60% and 70% of distributable cash flow (DCF), ensures a healthy balance between rewarding shareholders and reinvesting for future growth. This disciplined approach has allowed Enbridge to maintain strong cash flow generation while strategically positioning itself for long-term growth opportunities.
Enbridge’s growth prospects remain strong. The company has a $25 billion secured growth backlog. Moreover, its $19 billion acquisition of three premier U.S. gas utilities is expected to further support its growth. Additionally, its ongoing efficiency improvements enhance Enbridge’s capacity to increase payouts.
The company expects its EBITDA to grow at a CAGR of 7-9% through 2026, while average annual DCF per share and earnings per share (EPS) are projected to increase by 3% and 4-6%, respectively. Beyond 2026, Enbridge anticipates steady growth, with EBITDA, DCF per share, and EPS rising by approximately 5% annually, providing a solid foundation for continued dividend growth.
Enbridge offers a compelling dividend yield of over 6.51%, making it an attractive option for income-oriented investors. Furthermore, Wall Street analysts have given ENB a “Moderate Buy” consensus rating.
Energy Dividend Stock #2: Energy Transfer (ET)
Energy Transfer (ET) is another top stock for regular dividend income. The company is known for consistently increasing its dividends and offering a high yield. It specializes in the transportation and storage of oil, natural gas, and related products.
Energy Transfer operates a large interstate pipeline system in the U.S., connecting major trading hubs and industrial regions. This extensive infrastructure helps the company generate steady revenue and solid profit margins, which in turn supports its regular dividend payouts.
While Energy Transfer has a well-balanced asset base that drives its financials, approximately 90% of its earnings come from stable, fee-based contracts, providing a reliable income stream. The remaining 10% includes exposure to commodities and spreads, contributing to its diversified earnings model.
With a strong pipeline network and ongoing demand for its infrastructure, Energy Transfer is well-positioned to enhance shareholder value through increased dividend payments. The company anticipates annual distribution growth of 3-5% in the foreseeable future, reflecting its commitment to returning value to investors. Energy Transfer offers an attractive dividend yield of 7.8%, making it a compelling dividend stock.
Insiders hold a significant stake in Energy Transfer, reflecting their confidence in the company’s future performance. Wall Street analysts are also optimistic about ET, giving it a “Strong Buy” consensus rating.
Bottom Line
Both Enbridge and Energy Transfer stand out in the energy sector, offering impressive dividend yields above 6%. Their dividends are backed by solid cash flows and diversified operations, implying their payouts are relatively safe. Further, for investors seeking dependable income, these two companies provide an attractive opportunity to benefit from their growing distributions.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
