I like to buy dividend stocks any chance I get. My goal is to grow my passive income from dividends and other sources to eventually cover my expenses. I have a long way to go, so I keep investing more money to grow my income.
Two dividend stocks I can’t wait to buy this month are Energy Transfer (ET) and Clearway Energy (CWEN.A) (CWEN -2.35%). While I can’t buy them right now due to trading restrictions, I plan to buy more shares as soon as I’m able. Here’s why I’m excited to add to my positions this month.
A monster payout
Energy Transfer recently increased its quarterly distribution by another 15%. The master limited partnership (MLP) has boosted its payout by 75% over the past year. Its latest increase also achieved its goal of returning the distribution to its pre-pandemic level.
At that reset rate, the energy midstream company now yields more than 9%. That big-time payout is on a sustainable foundation. Energy Transfer spent the past few years using the excess cash it retained following its 50% distribution reduction in 2020 to repay debt. As a result, leverage is within its targeted level. That’s giving it more financial flexibility.
Meanwhile, the MLP generates more than enough cash to cover its distribution and expansion program. It produced $1.6 billion of distributable cash flow in the third quarter and $760 million of excess cash after paying the distribution, which easily covered growth capital spending that averaged around $500 million a quarter last year. The company has several projects under construction, including new pipelines, processing plants, and export capacity.
Energy Transfer’s expansion investments should grow its cash flow as they come online. It expected to spend up to $2.1 billion on organic growth last year, with 90% of that spending on projects that should contribute cash flow before the end of this year. Energy Transfer also used its growing financial flexibility to make two acquisitions last year: Woodford Express for $485 million and Spindletop for $325 million. The company has the financial flexibility to continue investing in organic expansions and acquisitions, which could give it the fuel to continue growing its big-time distribution in the future.
High-powered dividend growth ahead
Clearway Energy has steadily increased its payout in recent years. It most recently raised its payout by 2% above the prior level and has grown it by 8% over the past year. That has helped boost the renewable energy company’s dividend yield to 4.3%.
Clearway is targeting annual dividend growth in the upper end of its 5% to 8% annual range through 2026. Powering that outlook is the company’s capital recycling strategy. Last year, it sold its thermal assets, generating $1.35 billion in net proceeds. It has been redeploying that cash into higher-returning renewable energy investments. Clearway has already lined up deals — many with its parent Clearway Energy Group (CEG) — to put that capital to work. Those deals should close over the next few years as the projects become operational. That gives it a clear line of sight on future cash-flow growth, supporting its dividend growth outlook.
The company should be able to continue growing its payout well beyond its current outlook. It will have plenty of opportunities to make acquisitions. CEG is a large developer of wind and solar energy projects and has an extensive pipeline of projects under development it can drop down to its affiliate in the future. Meanwhile, energy giant TotalEnergies (TTE 0.58%) recently bought a 50% stake in CEG. As part of that transaction, TotalEnergies gave Clearway a right of first offer on its U.S. onshore renewable energy portfolio, which could enable it to buy assets TotalEnergies wants to sell. The company has a solid financial profile to fund future deals after utilizing its thermal sale proceeds.
Passive income boosters
Energy Transfer offers a big-time payout on rock-solid ground, while Clearway pays an above-average dividend that should grow at the high end of its target range for the next few years. Because of that, they’ll both supply my portfolio with lots of income in the future. That’s why I can’t wait to add to my positions this month.
Matthew DiLallo has positions in Clearway Energy and Energy Transfer and has the following options: short February 2023 $11 puts on Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.