3 Top Dividend Stocks

The energy sector has been good to dividend investors over the years as companies operating in the industry tend to generate lots of cash, which allows them to pay lucrative and growing dividends. While the sector offers income-seekers a variety of opportunities, three top options to consider are ExxonMobil (NYSE: XOM), MPLX (NYSE: MPLX), and Phillips 66 (NYSE: PSX). Not only do all three currently offer above-average payouts, but they have the financial strength and visible growth prospects to continue increasing their dividends in the coming years.

The high-yielding oil giant

ExxonMobil currently yields an attractive 4.1%, which is more than double the average of stocks in the S&P 500. Not only does Exxon offer investors a high-yield dividend, but it has been an excellent dividend growth stock over the years, with the oil giant increasing its payout for a remarkable 36 consecutive years. That's very impressive considering that the last several years have been brutal on the oil industry due to low oil prices.

However, with oil prices on the upswing, ExxonMobil's dividend not only appears to be on solid ground but should continue rising. Driving that view is the company's bold expansion plan, which will see it grow output 25% by 2025. That plan would also see the company more than double earnings and cash flow from 2017's level, and that's assuming oil is between $60 to $65 a barrel, which is below the current range of $65 to $70, suggesting the potential for even stronger earnings growth if oil remains higher than the forecast range. That compelling combination of growth and income, when combined with the fact that Exxon has one of the highest credit ratings in the world, makes it a top dividend stock for income seekers to consider.

An outsized yield with ample upside

Midstream giant MPLX offers investors an even more attractive yield of nearly 7%, due in part to the fact that the company is a master limited partnership (MLP) and pays out a much larger percentage of its cash flow than most other companies. On top of that outsized yield, the pipeline company also has a long history of raising its payout, with it recently notching its 22nd consecutive quarterly increase this past July.

MPLX should have no problem continuing to boost its payout given its strong financial profile and growth prospects. The company currently expects to finish about $2 billion of expansion projects in 2018, which should fuel 10% distribution growth for the year. Meanwhile, it recently announced plans to expand its infrastructure in the Permian Basin and Marcellus Shale via several new projects. On top of that, the company's oil refining parent is in the process of acquiring a rival, which will bring several additional midstream assets into the fold as well as control over another MLP that it could eventually merge with MPLX. The upside from those expansion opportunities position MPLX to continue increasing its payout at a healthy rate.

The fuel to continue growing

While Phillips 66 offers the lowest yielding dividend within this trio, at 2.7%, it's still well above the average of stocks in the S&P 500. Further, the oil refining company has been a top-notch dividend growth stock since its inception in 2012, increasing the payout eight times so far, and by a 27% compound annual growth rate.

Phillips 66 shouldn't have any problems continuing to grow its dividend. Driving that view is the fact that the company not only recently completed several major expansion projects but has started to refill its growth engine. In addition to that, the company's MLP's are investing a significant amount of capital to drive growth. The steadily rising cash flow from those projects, when combined with Phillips 66's strong balance sheet, should continue to provide it with the financial resources to pay a growing dividend and buyback meaningful amounts of stock.

Top dividend ideas for the long haul

Aside from all operating in the energy industry, ExxonMobil, MPLX, and Phillips 66 share several other commonalities that make them excellent dividend stocks. Not only do they currently offer above-average yields, a strong balance sheet, and a long history of dividend growth, but each has clearly visible growth prospects that should drive their payouts higher. That combination of factors makes them among the top options for dividend investors to consider.

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Matthew DiLallo owns shares of Phillips 66. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.