The first thing most income-seeking investors consider when looking at a potential investment is the dividend yield. But because dividend growth stocks have historically outperformed their stingier peers by a wide margin, what matters more is whether a company can increase its payout on a consistent basis. While many companies aim to do just that, some stocks stand out because they have the fuel to deliver high-octane income growth in the coming years.
Three such companies are Antero Midstream (NYSE: AM), EOG Resources (NYSE: EOG), and Noble Midstream Partners (NYSE: NBLX) since they're all on track to double their dividends over the next few years. That makes them great stocks for not only income seekers but for growth-focused investors as well.
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High-octane dividend growth ahead
Antero Midstream currently expects to increase its dividend at a 28% to 30% compound annual growth rate (CAGR) through 2020, and a 20% annual rate in 2021 and 2022. This outlook implies that Antero Midstream's dividend will skyrocket 138% from 2018's level by 2022. That's by far the fastest dividend growth rate in the oil and gas midstream sector. What makes this even more impressive is that Antero Midstream currently yields an impressive 6.6%, meaning investors stand to collect significant income along the way.
Fueling Antero Midstream's high-octane growth is the $2.7 billion of expansion projects the company expects to build over the next few years. The bulk of that spending will be on new natural gas gathering pipelines to support the anticipated production growth of its parent Antero Resources. Those projects should supply the company with enough cash flow to increase its dividend at a fast pace while maintaining sound financial metrics. That makes Antero a great option for investors seeking a high yield, as well as those wanting a high growth rate.
Hitting the accelerator on dividend growth
Oil producer EOG Resources probably doesn't catch the attention of most income seekers since its current dividend yield is only 0.85%. However, the oil company plans to put a priority on increasing its dividend in the coming years. EOG already boosted its payout 31% in 2018 and planned on growing it at a more than 19% CAGR going forward. At that pace, the oil giant could double its dividend from 2018's annualized rate by 2022.
The reason EOG expects to grow its dividend at such a fast pace is that its low-cost oil business is producing more cash than it needs. At $50 oil, for example, EOG Resources can generate more than the $6.3 billion required to fund its dividend and expand its U.S. oil production by a high-teens rate. That leaves it with plenty of excess cash to pay down debt, which will reduce its interest expenses. The growth in production, meanwhile, when combined with declining interest expenses, should expand EOG's cash flow at a fast pace in the coming years, giving it the funds to increase its dividend at a high rate.
Fast-paced growth for years to come
Noble Midstream Partners shares many similarities with Antero Midstream. Not only does it offer income investors an attractive yield of 6.5%, but it expects to increase that payout by a 20% CAGR through 2022. This forecast implies that Noble Midstream's payout will more than double from 2018's level by 2022.
The main fuel driving Noble Midstream's outlook is the continued expansion of its midstream footprint. The company is currently building out several oil and gas gathering systems in both the Delaware and DJ basins to support the growth of its parent and serve third-party producers. These projects are primarily low-cost, high-return expansions that will enable the company to steadily grow cash flow in the coming years as production from newly drilled wells flows through these systems.
In addition to building out its gathering business, the company holds options to buy two long-haul pipelines that are currently under construction. Noble Midstream can acquire up to 30% of the EPIC crude pipeline and 15% of the EPIC natural gas liquids pipeline that should start service by 2020. Exercising these options would provide another boost to Noble Midstream's cash flow while diversifying its revenue stream, providing even more support for the company's dividend growth plan.
The fuel needed to produce market-crushing returns
These energy stocks are all on track to double their dividends by 2022. That sets investors up to collect a significant amount of income in the coming years. And since companies that grow their dividends tend to outperform all other stocks, this trio seems to have a higher probability of beating the market considering how much they expect to increase their payouts over the next few years.
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