Pipeline companies can be excellent income investments. Most pipelines operate under government-regulated rate structures or long-term, fixed-rate contracts. As a result, they generate very stable cash flow that pipeline companies can pay out in dividends.
Here are three high-yielding pipeline stocks you can hold forever for a steady and rising passive income stream.
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Enbridge
Enbridge (ENB +0.35%) is one of the largest energy infrastructure companies in North America. The Canadian company operates the longest and most complex crude oil and liquids pipeline system on the continent, transporting 30% of its crude oil production. Meanwhile, its gas pipeline network moves 20% of the gas consumed in the U.S. Enbridge also operates North America's largest gas utility franchise by volume and has a growing renewable energy business.
More than 98% of the company's earnings come from regulated assets or take-or-pay contracts. Enbridge's earnings are so stable and predictable that it has achieved its annual financial guidance for 20 consecutive years. The pipeline company has also raised its dividend for 31 straight years (in Canadian dollars).
NYSE: ENB
Key Data Points
Enbridge currently has around 40 billion Canadian dollars ($29 billion) of commercially secured expansion projects in its backlog that it expects to complete through the early part of the next decade. Meanwhile, it's pursuing CA$50 billion ($35.4 billion) of additional expansion opportunities that it could approve through 2030 to further enhance and extend its growth rate. That helps support its expectation of delivering around 5% annual cash flow per share growth starting next year, which should help it continue growing its more than 5%-yielding dividend.
Enterprise Products Partners
Enterprise Products Partners (EPD +1.14%) is a leading U.S. energy midstream company. The master limited partnership (MLP) -- which sends a Schedule K-1 Federal tax form each year -- operates an integrated, diversified platform that supports the flow of natural gas, natural gas liquids, oil, refined products, and petrochemicals. Around 80% of its earnings come from fee-based sources.
NYSE: EPD
Key Data Points
The MLP pays a lucrative cash distribution (a current yield of more than 5.5%) that it has increased for 27 straight years. Despite its high yield, Enterprise Products Partners has a conservative payout ratio (57% of its cash flow from operations). It also has the strongest balance sheet in the pipeline sector.
Enterprise Products Partners currently has $5.3 billion in major growth capital projects under construction, which it expects to complete by the end of next year. Its current slate of projects includes new gas processing plants, a major pipeline expansion, and two marine terminal expansion projects. These and future projects should give the MLP more fuel to continue increasing its high-yielding distribution.
Kinder Morgan
Kinder Morgan (KMI 0.74%) operates the largest natural gas transportation network in the U.S., moving 40% of the country's gas production. The energy company is also the largest U.S. independent refined products transporter and terminal operators and one of the largest carbon dioxide transporters.
NYSE: KMI
Key Data Points
Take-or-pay contracts and hedges lock in about 70% of its annual cash flows, while another 26% come from fee-based agreements. As a result, it generates very stable and predictable cash flow. Kinder Morgan expects to generate about $6.4 billion in cash this year, easily covering the $2.7 billion it plans to pay out in dividends (3.5% current yield).
Kinder Morgan is investing its retained cash flow to expand its pipeline operations. It currently has over $10 billion in commercially secured expansion projects, including three major gas pipelines, which should enter service through 2030. These and future expansion projects (it's currently pursuing more than $10 billion of additional projects) will give Kinder Morgan more fuel to increase its high-yielding dividend, which it has now done for nine years in a row.
Your pipelines to passive income
Enbridge, Enterprise Products Partners, and Kinder Morgan have long histories of growing their high-yielding dividends. That should continue as they expand their pipeline systems to support rising energy demand. It makes them great energy stocks to hold for the long haul for steadily rising dividend income.
