Companies that pay a dividend have a long history of beating the market. The best performers, however, are typically companies that consistently grow their payouts. Because of that, dividend investors should focus their efforts on companies with well-defined dividend-growth plans.
Three companies that offer investors an attractive yield and healthy growth prospects are Oasis Midstream (OMP), Atlantica Yield (AY 7.56%), and NextEra Energy Partners (NEP 4.77%). Here's why income investors will want to take a closer look at these energy companies.
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Big-time yield and growth prospects
Oasis Midstream Partners currently offers investors an eye-catching yield of 12.3%. While a payout in the double digits is usually a sign of trouble, that's not the case with this midstream master limited partnership (MLP). That's because the company currently generates enough cash to cover its above-average distribution by a comfortable 1.7 times. On top of that, the company has a healthy balance sheet backed by a 2.8 times leverage ratio, which is well below the 4.0 times comfort zone of most MLPs.
Thanks to that strong financial profile, Oasis Midstream has the financial flexibility to invest in expanding its midstream footprint. That will allow it to support the growth of its oil-producing parent (Oasis Petroleum), as well as third-party producers.
Given the projected production growth of Oasis and others on the MLP's system, it believes it can support 20% annual distribution growth through at least the end of 2021. That's one of the fastest rates in its peer groups.
Oasis Midstream's combination of yield and growth potential could give it the fuel to generate big-time total returns in the coming years. That makes it a compelling stock for investors to consider.
An attractive combination of yield and growth
Atlantica Yield's current 6.6%-yielding dividend might not be quite as high as Oasis' payout, but it's still well-above average. Meanwhile, the sustainable infrastructure company believes it can grow its dividend by an 8% to 10% annual rate through the end of 2022. Powering the company's growth plan is its ability to invest in new infrastructure.
The company has already poured about $330 million into new opportunities over the past year, which will help power near-term dividend growth. These have included new electricity transmission lines in Peru, a water desalination plant in Algeria, a gas-fired power plant in Mexico, and a wind farm in Uruguay.
Atlantica believes it can invest $200 million to $300 million per year in new investment opportunities in clean energy, water infrastructure, and electricity transmission. Driving that belief is its partnership with Canadian utility Algonquin and others, which will help supply it with a steady stream of opportunities. Add in the company's healthy balance sheet, and Atlantica Yield appears as if it will have plenty of power to continue increasing its dividend over the next few years.
An above-average yield with high-powered growth
NextEra Energy Partners currently pays the lowest yield of this trio at 4%, though that's still about double the yield of the average stock in the S&P 500. The clean-energy-focused company more than makes up for that lower yield with its growth prospects. It currently plans to increase its payout by a 12% to 15% annual rate through at least 2024.
Powering that plan is the company's ability to acquire clean energy assets from its parent, NextEra Energy (NEE 1.36%), and third parties. NextEra Energy Partners has demonstrated its ability to do both this year. Earlier this month, the company acquired the Meade Pipeline Co., which owns a stake in a large-scale natural gas pipeline in the Northeast. Meanwhile, in March, the company bought a portfolio of wind and solar energy-generating assets from NextEra.
These two deals have given the company enough power to support its dividend growth plan through 2021. It should have no problem fueling growth beyond that time frame, given that NextEra Energy has a large portfolio of renewable energy assets that it can acquire.
Dividend options to suit any need
All three of these energy companies offer investors above-average yields and visible growth prospects. However, each one does so with a slightly different twist.
Oasis Midstream, for example, pays an eye-popping yield, which it complements with high-octane growth potential. Atlantica Yield, meanwhile, offers a more balanced blend of income and growth. Finally, NextEra Energy Partners pays a lower-yielding dividend but should deliver high-powered growth for the next five years. These differences give investors the option of choosing a dividend stock that meets their specific needs.
