The 5 Dividend Champions of Energy

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While it is easy to get caught up in dividend stocks with a high yield, investors tend to earn higher returns by investing in companies that pay a growing dividend. While several energy stocks have managed to grow their dividends in good times, only the best handful have succeeded in raising their payout throughout more than one energy cycle.

Here are five champions that have delivered consistent dividend growth for more than a decade:

Data source: Company press releases and investor Web pages.

Drilling down into the dividend champions of energy

Oil giant ExxonMobil is a true dividend champion: Its stock is one of only 51 that qualify as a Dividend Aristocrat -- a stock that has increased its payout for more than 25 consecutive years. What makes this a truly impressive feat is that Exxon can increase its payout even though its business is producing oil, which has a highly volatile price. Exxon offsets some of that volatility through its downstream and chemicals segments, which tend to be countercyclical. For example, last year Exxon's upstream earnings plunged $20.4 billion due to weak oil prices. However, a $6.6 billion increase in downstream earnings and a $102 million rise in chemical earnings helped soften the blow. Those offsetting results, combined with a strong balance sheet, enable the company to continue growing its dividend.

U.S. midstream giant Enterprise Products Partners primarily owns fee-based assets like pipelines and processing plants, resulting in relatively stable cash flow. Meanwhile, the company drove its payout higher through a combination of strategic acquisitions and organic growth projects. Currently, the company has $5.6 billion of primarily fee-based capital projects under construction and expected to go into service through 2018. Thanks to those, Enterprise Products Partners should not have any problem keeping its dividend growth streak alive.

Canadian pipeline giant Enbridge is similar to Enterprise Products Partners in that it too owns primarily fee-based assets. In fact, 96% of the company's revenue comes from fees or regulated earnings, which provides very stable cash flow. Further, Enbridge also has a long history of buying or building fee-based assets, and it currently has an enormous $26 billion backlog of projects under development. Because of that backlog, and a recent acquisition, Enbridge expects to deliver 10% to 12% annual dividend growth through 2024.

TransCanada shares many similarities with its Canadian pipeline counterpart. The biggest difference is that only slightly more than 90% of its revenue comes from fee-based assets, though the company is working to increase that by selling its U.S. merchant-power business. Another major difference is that TransCanada does not project growing its dividend by quite as rapid a rate in the future; it projects 8% to 10% compound annual growth through 2020. That said, a significant acquisition could enable the company to deliver stronger growth than anticipated.

Occidental Petroleum is one of the few oil companies that was able to increase its dividend this year. That is because it has countercyclical chemicals assets as well as midstream assets, which help smooth out cash flow. In addition, the bulk of Occidental's production comes from enhanced oil recovery projects in the Permian Basin, which deliver stable output and lucrative margins. Add to that a cash-rich balance sheet, and Occidental Petroleum has the financial flexibility to continue growing its payout.

Investor takeaway

There's one thing that sets these dividend champions apart from other energy stocks. Each owns assets that mute its direct exposure to volatile commodity prices. Those countercyclical or fee-based assets help to stabilize cash flow, enabling these companies not only to maintain their payout, but also to have the capacity to grow it even when times are tough.

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Matt DiLallo owns shares of Enterprise Products Partners. The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.