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The world will need much more energy in the future. New technologies, population growth and a growing middle class are all fueling the need for more energy. While cleaner sources such as renewables are likely to provide much of this new capacity, fossil fuels will also continue to play a crucial role in fueling the global economy.
There are many ways to take advantage of the growing need for energy. Brookfield Renewable (NYSE:BEP)(NYSE: BEPC), Kinder Morgan (NYSE: KMI)And Chevron (NYSE:CVX) stand out as some of the best options, according to a few Fool.com contributors. This energy shares all pay growing dividends, allowing investors to benefit from the growing need for energy.
High returns and a bright future
Ruben Gregg Brouwer (Brookfield renewable): If you like dividends, you’ll love Brookfield Renewable. It comes in two different flavors: a limited partnership with a 5.3% yield and a corporate share class with a 4.5% yield.
The two share classes represent the exact same entity, with the return difference determined entirely by the popularity of that business structure. But what exactly do they represent?
Brookfield Renewable is run by Brookfield Asset Management and owns an actively managed portfolio of renewable energy assets. That includes hydropower, solar energy, wind energy and batteries. In short, it gives you access to all major clean energy categories. The portfolio is also spread across the world, which also provides geographical diversification. It’s kind of a one-stop shop for clean energy.
But the key is that Brookfield Renewable is actively managed. It likes to buy assets cheap, increase their value by investing in them, and then sell them when they are expensive. The proceeds are invested in new investment opportunities.
This isn’t a typical energy investment, it’s more like a clean energy hedge fund. But demand for clean energy is growing rapidly, so there is a huge growth opportunity for Brookfield Renewable.
It’s worth a deep dive for dividend investors who can think outside the typical energy box. It is striking that the payout has been regularly increased over the past twenty years by an attractive annual amount of approximately 6%.
Stomping on the gas
Matt DiLallo (KinderMorgan): The demand for natural gas in this country is expected to grow rapidly over the next decade. Analysts expect demand to rise by 20 billion cubic feet per day (Bcf/d) in 2030 from last year’s level of 108 Bcf/d.
Driving this demand is things like export of natural gas (LNG and Mexico) and the rising demand for energy and industry. Furthermore, artificial intelligence (AI) data centers could drive significant additional demand due to their massive energy needs. The base case is that they will add 3 Bcf/d to 6 Bcf/d of incremental demand by 2030, with upside potential of more than 10 Bcf/d.
There are few companies in a better position to take advantage of this opportunity than Kinder Morgan. The leading natural gas infrastructure company al moves 40% of the country’s gas production and controls 15% of its storage capacity. It has started securing projects to expand its capacity.
For example, the company and its partner recently approved the $3 billion South System Expansion 4 project, which will add 1.2 Bfc/d of gas capacity in the Southeast when it comes online in 2028. Meanwhile, Kinder Morgan recently granted approval A 570 million cubic feet per day expansion of the Gulf Coast Express Pipeline. The $455 million project will open in mid-2026.
The company has many more projects in development. They contribute to the vision that it can grow its stable cash flows in a consistent and consistent manner sustainable basis for many more years to come. That should give the company enough strength to further increase its dividend. It has increased its payout, which currently yields almost 5%, by seven directly year.
With a robust opportunity to expand and a high-yielding and steadily rising dividend, Kinder Morgan is an excellent energy stock to buy now. It has a high probability of production above-average total returns in the coming years.
A top dividend stock in the oil patch
Neha Chamaria (Chevron): Chevron’s dividend track record is among the best in the energy sector. While several oil and gas companies regularly pay dividends, Chevron has increased its dividend for more than 35 years in a row, including an 8% dividend increase announced earlier this year.
The company has also grown its dividend per share at a faster compound annual rate than peers ExxonMobil in the past five years. Over time, Chevron’s dividends, when reinvested, have contributed significantly to shareholder returns.
Shareholders can continue to expect larger dividends from Chevron year after year, thanks to the company’s focus on growing free cash flow (FCF). So management expects free cash flow to grow at an average annual rate of more than 10% through 2027 at a Brent crude oil price of $60 per barrel.
Better yet, Chevron’s FCF could grow faster if the oil giant makes an acquisition Heswhich seems more likely now that the deal has been greenlit by the Federal Trade Commission. Chevron has already stated that it expects its production and free cash flow to grow faster and longer than the current five-year forecast post-acquisition.
Of course, that could also mean bigger dividend increases for Chevron investors. Given its FCF growth potential and current 4.3% yield, it seems like one of the best energy dividend stocks to buy right now.
Should you invest $1,000 in Brookfield Renewable Partners now?
Consider the following before purchasing shares in Brookfield Renewable Partners:
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Matt DiLallo has positions in Brookfield Asset Management, Brookfield Renewable, Brookfield Renewable Partners, Chevron and Kinder Morgan. Neha Chamaria has no position in any of the stocks mentioned. Ruben Gregg Brouwer has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Brookfield Asset Management, Brookfield Renewable, Chevron and Kinder Morgan. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has one disclosure policy.
3 Best Energy Dividend Stocks to Buy Now was originally published by The Motley Fool