Oil prices have cooled off considerably over the past year, despite continued supply issues following the fallout of Russia’s invasion of Ukraine. That volatility showcases one of the pitfalls of investing in energy stocks.
However, not all energy stocks have exposure to pricing volatility. Many generate stable cash flows, giving them the funds to pay attractive dividends and invest in growing their operations. Brookfield Infrastructure (BIP) (BIPC), Enterprise Products Partners (EPD), and NextEra Energy (NEE) stand out for their stable cash flows and growing dividends. With their stock prices falling along with the broader market over the past year, investors should consider buying as many shares as they can get their hands on this month.
1. Brookfield: Down even though it’s growing briskly
Brookfield’s durable cash flows were on full display during the first quarter. The global infrastructure company grew its funds from operations (FFO) by 12% in the period, driven by 9% organic growth. The company benefited from inflation-driven rate increases, higher volumes, and finishing $1 billion of expansion projects. The biggest growth driver was Brookfield’s utility segment, where FFO jumped 25%, powered by inflation and $450 million of expansion projects.
Brookfield’s units have fallen 18% from their 52-week high despite the company’s robust growth. That has the company trading at a bargain-basement price, especially given the growth ahead. The company recently completed the construction of its Heartland Petrochemical Complex. It should fuel growth for its midstream operations during the second half of the year.
Brookfield also recently completed its HomeServe acquisition, which will help power growth in its utility segment. Meanwhile, Brookfield recently signed deals to bolster its data and transportation infrastructure segments.
With its unit price down, Brookfield Infrastructure currently offers an attractive dividend yield of 4.3%. The company expects to grow that payout at a 5% to 9% annual rate. Those features make it a great option for those seeking passive income.
2. Enterprise Products Partners: As steady as ever
Enterprise Products Partners also showed the stability of its earnings in the first quarter. The midstream master limited partnership (MLP) produced $1.9 billion of distributable cash flow, up 5.5% from the prior-year period. It benefited from record volumes across several of its operating segments.
Units of the MLP are down about 10% from their 52-week high, despite that stable growth. That lower price is one reason Enterprise Products Partners currently offers a generous cash distribution yield of 7.6%.
The MLP generated enough cash to cover that payout by a comfy 1.8 times in the first quarter. That allowed it to retain all the money needed to fund its expansion program with room to spare. This excess cash further strengthened its top-tier balance sheet, which boasts a low leverage ratio and the best credit rating in the midstream sector.
Enterprise Products Partners has increased its hefty cash distribution for 25 straight years. That seems likely to continue. The company has $3.8 billion of expansion projects on track to come online this year, part of a $6.1 billion backlog. Those projects should fuel its growth for the next several years.
3. NextEra Energy: Growing at a powerful pace
NextEra Energy generated strong growth in the first quarter. Its adjusted earnings per share rose 13.5%, powered by the expansion of its Florida electric utility and energy resources business. Despite its robust growth, shares of NextEra Energy have fallen more than 15% from their 52-week high.
The company expects to continue growing at an above-average rate for several years. It anticipates its earnings per share increasing by 6% to 8% annually through at least 2026. That should power dividend growth of around 10% per share through next year. That payout currently yields 2.5%.
NextEra Energy has an extensive backlog of renewable energy projects to help power its expansion plan. It’s also investing in other alternatives, including renewable natural gas and hydrogen. The company’s focus on clean energy investments should help power growth for decades.
Steady growth stocks on sale
Brookfield Infrastructure, Enterprise Products Partners, and NextEra Energy are all growing at healthy rates these days, which will likely continue. Despite that, all three have fallen sharply from their 52-week highs. As a result, they all offer higher-yielding dividends, which they should be able to keep growing in the future.
That income and growth combo at a lower price position them to potentially produce powerful total returns in the coming years. It makes them energy stocks investors will want to buy hand over fist in May.
— Matthew DiLallo
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Source: The Motley Fool