It’s no secret that oil companies have been gushing profits and cash flow.
After all, when Big Oil reported financial results for 2022, President Joe Biden called the industry’s record profits “outrageous.”
And that means these major oil producers can return a lot of cash to investors.
For instance, Chevron Corp. announced a 6% increase to its quarterly dividend to $1.51 per share in January. At the current share price, the oil-producing giant offers an annual dividend yield of 3.8%.
At ExxonMobil Corp., the board boosted the company’s quarterly payout to 91 cents per share last October. The stock now yields 3.4%.
To put that in perspective, the average dividend yield of S&P 500 companies stands at just 1.7% at the moment.
While Big Oil’s juicy dividends seem attractive in today’s market, not everyone is a fan.
For instance, environmental, social and governance (ESG) investors may not want exposure to the sector because the extraction, production and use of oil can lead to carbon emissions, air pollution and climate change.
The good news? Hydrocarbon exploration and production is not the only business capable of delivering generous returns to income investors. These days, clean energy stocks can pay oversized dividends, too.
Here’s a look at two of them. Wall Street also sees upside in this duo.
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Brookfield Renewable Partners LP BEP
Brookfield Renewable Partners owns and operates a diverse portfolio of renewable energy assets across North America, South America, Europe and Asia. The partnership invests primarily in hydroelectric, wind, utility-scale solar and storage facilities.
As one of the largest publicly traded, pure-play renewable energy platforms in the world, Brookfield Renewable boasts 25,700 megawatts of installed capacity and a development pipeline of around 126,000 megawatts of renewable power assets.
The partnership also stands out for its cash returns to investors. In 2001, it paid total distributions of 38 cents per unit. This year, it’s on track to pay $1.35 per unit. That translates to a compound annual growth rate (CAGR) of 6%.
At the current unit price, Brookfield Renewable offers an annual distribution yield of 4.2%.
The best part? Management aims to sustainably increase the payout over time, with an annual distribution growth target averaging between 5% and 9%.
Year to date, Brookfield Renewable stock has already surged more than 20%, and Wells Fargo Securities analyst Jonathan Reeder sees further upside on the horizon. The analyst has an Overweight rating on Brookfield Renewable and a price target of $36 — around 12% above the current levels.
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NextEra Energy Partners LP NEP
NextEra Energy Partners was created by energy company NextEra Energy Inc. NEE to own, manage and acquire clean energy projects that generate steady cash flows.
Today, NextEra Energy Partners’ portfolio holds interests in wind, solar and energy storage projects in the U.S., along with natural gas infrastructure assets in Texas and Pennsylvania.
Because natural gas is not considered a renewable energy source, NextEra Energy Partners is not a renewables pure-play. However, it recently announced plans to become one.
“To lead this transition, we are launching a process to sell our natural gas pipeline assets, and we are suspending incentive distribution rights fees to NextEra Energy through 2026,” John Ketchum, chairman and CEO of NextEra Energy Partners, said in a press release.
As NextEra Energy Partners begins its transition to a 100% pure-play renewable energy investment opportunity, it still plans to be very income investor-friendly.
The partnership currently pays quarterly distributions of 84.25 cents per share, giving the stock an attractive annual yield of 5.4%. Management expects to grow the distribution per unit by 12% to 15% per year through at least 2026, although they mentioned that given the current capital market environment, the growth rate will probably be “at or near the bottom end of this range.”
Oppenheimer & Co. Inc. analyst Noah Kaye has an Outperform rating on NextEra Energy Partners and a price target of $90, implying a potential upside of 46% from the current levels.
The Bottom Line
Energy, whether derived from fossil fuels or renewable sources, underpins the functioning of contemporary society, making many energy stocks a potent source of dividends. But the realm of high-yield investments extends far beyond the energy sector.
Other industries, such as those catering to basic human needs like food and shelter, can also provide considerable returns. For those seeking to generate passive income without the volatility often associated with publicly traded stocks, there are avenues to invest in these essential-service businesses through the private market.
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