There are lots of ways to make more passive income. Investing in higher-yielding dividend stocks can be a great option. The best ones pay a lucrative and growing dividend.
Energy Transfer (NYSE: ET) and Clearway Energy (NYSE: CWEN)(NYSE: CWEN.A) currently offer dividend yields above 6%. That's several times higher than the S&P 500's rather meager 1.2% dividend yield. Even better, they expect to grow their high-yielding payouts in the coming years. Because of that, they should be able to supply investors with a lot of passive income in the future.
Energy Transfer currently has a 6.2% distribution yield. At that rate, every $100 invested into the energy midstream company would produce $6.20 of passive income each year, compared to only $1.20 from an S&P 500 index fund. The master limited partnership (MLP) backs its high-yielding payout with stable cash flow and a rock-solid financial foundation. About 90% of its earnings come from predictable fee-based contracts as it provides midstream services to energy companies. Meanwhile, it has a conservative payout ratio (a little more than 50% of its free cash flow) and a strong balance sheet. Its leverage ratio is currently heading toward the low end of its 4 to 4.5 times target range.
The MLP produces ample free cash flow after paying distributions to cover its growth capital spending, which it expects to be in the range of $2.5 billion to $3.5 billion each year. The company has several expansion projects underway, including the recently approved $2.7 billion Hugh Brinson Pipeline. Energy Transfer's current slate of growth capital projects will supply it with incremental earnings and cash flow through the end of next year. Meanwhile, it has several more expansion projects in development, including the long-delayed Lake Charles LNG project.
In addition, Energy Transfer has a long history of making accretive acquisitions. Last year, the company bought WTG Midstream in a deal that will add $0.04 per unit to its distributable cash flow this year, increasing to $0.07 per unit in 2027. The MLP has ample financial flexibility to continue making accretive acquisitions as opportunities arise.
Energy Transfer's growth drivers fuel its view that it can increase its distribution by 3% to 5% annually. That makes it a great passive income option for those comfortable with investing in MLPs, which send a Schedule K-1 Federal Tax Form each year.
Clearway Energy currently pays a 6.5%-yielding dividend. The clean energy infrastructure company backs that payout with very stable cash flow. It sells the power its renewable energy and natural gas power plants produce to utilities and corporate customers under long-term, fixed-rate power purchase agreements.
Story Continues
The company has spent the past few years recycling the capital from selling its thermal business into new renewable energy investments. That strategy has steadily grown the company's cash flow as it closed new investments. It has deals lined up to grow its cash flow and dividend through next year. It's targeting dividend growth of 6.8% this year and a 6.5% increase in 2026.
Clearway Energy expects to have plenty of power to continue increasing its dividend in 2027 and beyond. It plans to use retained cash after paying dividends (it's targeting a 70% to 80% payout ratio) and its balance sheet flexibility to continue investing in new renewable energy projects. Given the growing demand for renewable energy, it should have ample opportunities to acquire operating assets and invest in development projects. It expects to make enough investments each year to support 5% to 8% annual dividend growth while maintaining its targeted dividend payout ratio and leverage level.
Energy Transfer and Clearway Energy offer higher-yielding dividends. That enables investors to generate more passive income from every dollar they invest. Further, they expect to grow their high-yielding payouts in the future. That growing income stream makes them excellent options for those seeking to make a bit more passive income this year.
Before you buy stock in Energy Transfer, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Energy Transfer wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $788,619!*
Now, it’s worth noting Stock Advisor’s total average return is 929% — a market-crushing outperformance compared to 177% for the S&P 500. Don’t miss out on the latest top 10 list.
*Stock Advisor returns as of February 7, 2025
Matt DiLallo has positions in Clearway Energy and Energy Transfer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Want to Make More Passive Income? These 2 Dividend Stocks Offer Yields Above 6%. was originally published by The Motley Fool
