The average dividend yield of a stock is currently less than 1.5% based on the S&P 500‘S dividend yield. That is well below the historical average of more than 4% over the long term, as many companies have de-emphasized dividends in recent years.
However, there are some hotbeds for those looking high dividend yieldsMultiple . energy stocks have enough fuel to grow their high-octane dividends in the next decade. Enbridge (NYSE: ENB) And Clearway Energy (NYSE: CWEN.A)(NYSE: CWEN) are among the dividend outliers in the sector, with payouts yielding more than 5%. They expect to increase those big dividends in the coming years. That makes them great income stocks to buy and hold for the next decade.
A dividend paying machine
Enbridge has been one of the best dividend stocks in the energy sector for decades. The Canadian pipeline And utility company has been paying dividends for over 69 years and has increased its payout for the last 29 years in a row. It should have enough fuel to keep paying dividends for the next decade.
The remarkable predictability and sustainability of earnings drives that vision. Enbridge has met its financial forecast for 18 consecutive years. That includes two major recessions and two additional periods of oil market turbulence. The stability of earnings drives the predictability, with 98% coming from cost-of-service or contracted assets. Meanwhile, more than 95% of earnings come from investment-grade customers, while 80% of his profit have inflation protection.
Enbridge pays out 60% to 70% of its very stable cash flow in dividends. That payout currently yields more than 6.5%. The company’s conservative payout ratio gives it plenty of breathing room while which enables it to maintain billions of dollars a year to finance further expansion.
The company currently has billions of dollars of secured capital projects in its backlog, most of which are focused on lower-carbon energy, such as new natural gas pipelines, gas utility expansions and renewable energy projects. It expects to complete these projects in 2028, making it a lot of insight into future earnings growth. Meanwhile, the company has many more expansion projects in the pipeline that could extend its growth prospects further into the future. They support Enbridge’s view that it can grow its earnings by about 5% annually for the foreseeable future. That should give the company the fuel to continue to increase its dividend by up to that same annual rate.
A fully-driven near-term growth plan, with more to come
Clearway Energy is a leading renewable energy producer. It also generates energy from a portfolio of environmentally friendly natural gas-fired power plants. These assets generate highly predictable cash flow, which it uses to pay dividends. Clearway’s payout currently yields more than 5.5%.
The company has tremendous near-term visibility into its ability to grow that payout, expecting to expand the dividend to the upper end of its 5% to 8% target range through 2026.
The power behind that plan is capital recycling strategy. Clearway has been capitalizing on the value of its thermal energy assets for a few years now. It has steadily deployed the proceeds into higher yield investments in renewable energy. The company has now the full amount is fully recorded, providing a clear view to the ability to grow cash flow (and dividends) in the coming years.
Clearway should have enough fuel to continue growing beyond 2026. It has already started locking in in new power sales contracts for its natural gas power plants. Tariffs are incoming high enough to support dividend growth toward the low end of its target range in 2027 based on this factor alone. In the meantime, it should have ample opportunity to continue making new investments in renewables, given the unprecedented need for new capacity in the future.
Enough fuel to pay dividends
Enbridge and Clearway Energy currently offer large dividend yields. They back those payouts with very stable cash flow. The duo also has a lot of growth ahead as demand for energy grows, especially for energy with lower carbon emissions. As such, they are great stocks to buy and hold for the next decade, as they should have the fuel to pay their dividends and grow for years to come.
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Matt DiLallo has positions in Clearway Energy and Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.
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