After months of speculation, the Federal Reserve finally began cutting interest rates. Additionally, the Federal Reserve has indicated that it will continue to reduce rates.
Falling rates have huge implications. You may have already noticed that your bank reduced the interest rate on your savings account or that rates on CDs and U.S. treasury bonds They are no longer as attractive as before.
However, while rates on some investments are falling like autumn leaves, many dividend stocks expect to continue growing their payouts. Enbridge (NYSE: ENB), Kinder Morgan (NYSE: KMI)and NextEra Energy (NYSE: NO) They stand out among some Fool.com contributors for their ability to increase their dividends despite changing market conditions. That makes them ideal for those who want to receive more income in the future.
Enbridge won't sit still
Ruben Gregg Brewer (Enbridge): The big draw for most investors in midstream giant Enbridge will likely be the company's hefty 6.6% dividend yield. This is reasonable, considering that the dividend has been increased annually (in Canadian dollars) for 29 consecutive years. But Enbridge offers much more than just a dividend.
A key part of the company's approach is to adjust its portfolio to the changes underway in global energy demand. That's why the company's portfolio includes oil pipelines, gas pipelines, natural gas utilities, and renewable energy investments. Natural gas is expected to be a key transition fuel as the world moves towards cleaner alternatives, and renewable energy is the direction the world is heading. But oil is still important, allowing Enbridge to use its oil-tied profits to increase its exposure to natural gas and build things like wind and solar farms.
The most recent transaction, the purchase of three natural gas companies from Domain Energyis a great example of the goal. Before the deal, Enbridge generated 57% of earnings before interest, taxes, depreciation and amortization (EBITDA) from oil. After the agreement, that amount will be reduced to 50%. As an added benefit, highly reliable, albeit slow, growth opportunities lie ahead for regulated natural gas companies. These deals, which expanded natural gas services from 12% of EBITDA to 22%, help solidify Enbridge's ability to achieve its long-term goal of 5% distributable cash flow growth.
Enbridge seems boring, but high performance backed by a slow and steady business becomes very exciting over time. Especially when the company is intentionally adapting to the changing dynamics of the market it serves.
The fuel to continue rising
Matt DiLallo (Kinder Morgan): Interest rates have been a headwind for Kinder Morgan in recent years. For example, the company said in late 2022 that its distributable cash flow would take a hit of $0.15 per share in 2023 due to the impact of higher interest rates. This is because a quarter of your debt has a floating rate, meaning the interest expenses on this debt rise and fall with rates.
Despite this headwind, Kinder Morgan has continued to increase its high-yield dividend, which currently stands at more than 5%. It achieved its seventh consecutive annual dividend increase earlier this year.
With interest rates falling, they will go from being a headwind to a tailwind for Kinder Morgan. Interest expenses on the company's variable rate debt should decrease over the next year, that will save It's money. Meanwhile, lower rates will make it cheaper to refinance maturing debt and issue new debt to finance acquisitions as attractive opportunities arise.
Rates are not the only tailwind for the company. It is capitalizing on the growing demand for natural gas to supply liquefied natural gas public export facilities and services, and the latter are positioned for a increased electricity demand from AI data centers. Kinder Morgan has already prepared expansion projects worth $5.2 billion to support this growing demand. That includes a $1.7 billion pipeline project to supply more gas to Southeastern utilities that should come into service by the end of 2028.
Kinder Morgan's order book gives it a lot of visibility into its ability to grow its strong and stable cash flows. That growing cash flow should give the company enough fuel to continue increasing its dividend in the coming years, even if interest rates start to rise. growing again.
Lots of power to continue increasing your payment
Neha Chamaria (Energy of the next era): NextEra Energy owns the largest U.S. utility, Florida Power & Light, and is also the world's largest producer of wind and solar energy. The company relies heavily on debt to finance the growth of its utilities and renewable energy businesses, so falling interest rates should be good news for NextEra Energy shareholders in more ways than one, including dividends.
NextEra Energy has a strong dividend history. Between 2003 and 2023, it increased its dividend with a compound annual growth rate (CAGR) of 10%, supported by around 9% CAGR in its adjusted earnings per share (EPS). That dividend growth has generated significant returns for shareholders who reinvested the dividends over decades, and should continue to do so given NextEra Energy's goals.
NextEra Energy is targeting 6% to 8% growth in adjusted EPS and 10% average growth in dividend per share through 2026, driven by cash flow growth for its growth investments in both businesses. For example, the company expects to invest between $65 billion and $70 billion in renewable energy alone over the next four years. Lower interest rates should make it cheaper to finance growth for NextEra Energy and these investments should increase its cash flows and support higher dividends. In short, this 2.5% dividend stock should continue to increase its dividend payout year after year.
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Matt DiLallo He has positions in Enbridge, Kinder Morgan and NextEra Energy. Neha Chamaria has no position in any of the stocks mentioned. Ruben Gregg Brewer He has positions in Dominion Energy and Enbridge. The Motley Fool ranks and recommends Enbridge, Kinder Morgan, and NextEra Energy. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
Interest rates (and leaves) are falling, but here are three dividends that should continue to rise no matter what was originally published by The Motley Fool