The energy industry can be challenging for investors. Energy prices are notoriously volatile, impacting the sector's ability to generate steady earnings and dividend growth. Many energy companies have had to slash or suspend their dividends during tough times to stay afloat.
Because of that, energy companies that have delivered steady growth tend to stand out in the sector. However, some high-quality energy stocks continue to fly under the radar of most investors. Two incredibly productive energy companies that few investors talk about are Consolidated Edison (ED -0.03%) and Delek Logistics Partners (DKL 0.07%).
1. Not well known outside its region
Unless you live in New York City, you probably aren't too familiar with Consolidated Edison or Con Edison. The utility provides electric and natural gas distribution services to customers in and around New York City. The company doesn't get nearly enough credit for its remarkable consistency over the years.
Con Edison has increased its dividend for 48 straight years. That's the longest period of any utility in the S&P 500 index. It qualifies Con Edison as a Dividend Aristocrat and has it only a couple of years away from the even more elite group of Dividend Kings. The company currently boasts a 3.5% dividend yield, more than double the rate of the S&P 500 and above some of the more popular utilities.
Several factors have helped power Con Edison's remarkable dividend success. For starters, the company has maintained a solid financial profile, including a conservative dividend payout ratio target of 60% to 70% of its adjusted earnings. It also has a solid investment-grade-rated balance sheet. Those factors give it the financial flexibility to continue expanding its utility operations.
Con Edison is investing heavily to reduce its carbon emissions while supporting New York's growing demand for energy. It expects to invest $15.7 billion through 2024 on green energy, safety, and reliability projects, which should help power continued earnings and dividend growth for the utility's investors.
2. A hidden gem for income investors
Delek Logistics Partners is a little-known master limited partnership (MLP). Small independent refiner Delek US (DK 1.05%) formed the MLP to own, operate, acquire, and build midstream assets to support its operations. That strategy has been a smashing success. Delek Logistics Partners has grown its distribution for 37 straight quarters, or every quarter since its formation in 2012. It offers an even more attractive yield that's currently over 8%, well above the level of some of the more popular MLPs.
Fueling the MLP's consistent distribution growth has been a steady stream of acquisitions and expansion projects to support its parent's refining operations. Delek US has steadily sold its logistics assets to its MLP over the years, growing its portfolio of cash-flowing midstream businesses. Meanwhile, the MLP has invested capital in expanding its capacity to support its parent's growth.
Delek Logistics has also diversified beyond supporting its parent by acquiring assets tied to third parties. The MLP recently acquired 3Bear Energy for $624.7 million. The crude oil and gas gathering, processing, and transportation business enhanced its scale while diversifying its revenue and product mix. It should also give the MLP the fuel to continue growing its distribution. Delek Logistics plans to increase its payout by another 5% this year.
Even after closing that large-scale transaction, the MLP has plenty of fuel to keep growing. It still has a solid balance sheet and a conservative distribution coverage ratio. Meanwhile, Delek US still has some midstream assets it can drop down to its MLP in the future.
Incredible dividend growth
Energy stocks aren't always consistent growers due to the sector's volatility. That makes Con Edison and Delek Logistics Partners stand out because they've delivered steady dividend growth for years. Despite that remarkable consistency, most investors aren't talking about them these days. Because of that, they don't trade for premium prices like some peers, enabling them to offer attractive dividend yields.
