Investors love passive income. We can use it to pay our bills, fund our vacations, or donate to worthy causes. And if we can earn enough money from our investments to cover all our expenses -- without having to sacrifice too much of our limited time and energy to earn it -- then we truly are free.
Here are two passive income-producing dividend stocks that can help you advance your own journey toward financial independence.
Dividend stock to buy No. 1: Kinder Morgan
Roughly 40% of the natural gas produced in the U.S. moves through Kinder Morgan's (KMI -0.29%) vast pipeline network. With the artificial intelligence (AI) boom set to create voracious demand for more electricity, the energy titan's critical infrastructure is about to become even more valuable.
Kinder Morgan's nearly 80,000 miles of pipeline and 139 storage terminals also help to transport crude oil, gasoline, renewable fuels, chemicals, and a host of other products across the U.S. These crucial energy services generate predictable profits. Only 5% of Kinder Morgan's cash flow is directly impacted by commodity price swings. The other 95% is either hedged or secured by fixed-price contracts.
These dependable, tollbooth-like revenue streams have enabled the infrastructure giant to grow its adjusted earnings by 8% annually since 2016. These steadily increasing profits have allowed Kinder Morgan to strengthen its balance sheet by shedding over a quarter of its debt leverage during this time, while still rewarding its investors with over $20 billion in dividends and share repurchases.
Better still, with U.S. natural gas demand forecasted to rise by nearly 20% by the end of the decade, Kinder Morgan is gearing up for further expansion. As of June 30, the company had $5.2 billion allocated to promising growth projects. The booming export market for liquified natural gas (LNG) is a particularly attractive opportunity that's projected to boost the utilization of Kinder Morgan's pipelines and other infrastructure assets.
Moreover, these growth estimates for natural gas usage may prove conservative. Many investors have yet to fully appreciate the impact that AI could have on power demand. Massive AI data centers gobble up electricity, much of which will need to be generated by gas-fired power plants. During the company's second-quarter earnings call in July, Executive Chair Richard Kinder said that he saw early signs of a forthcoming surge in AI-fueled demand for natural gas that could be "jaw-dropping."
Today, Kinder Morgan's passive income-producing stock yields a solid 4.6%. With the AI boom set to accelerate its growth, the energy leader's investors can expect to receive even larger cash payments in the years ahead.
Dividend stock to buy No. 2: Brookfield Renewable
Like natural gas, renewable power sources will be needed to quench the world's voracious thirst for energy. Brookfield Renewable (BEPC -0.94%) (BEP -0.94%) offers investors a proven way to cash in on the growth of clean energy projects around the world.
Brookfield has built an impressive portfolio of solar, wind, hydroelectric, nuclear, and other power-generating assets in North and South America, Europe, and Asia. The company has a knack for finding undervalued opportunities and successfully developing projects. Brookfield's massive scale, strong balance sheet, and diverse capital sources enable it to acquire assets on attractive terms, while its operational expertise allows it to improve their economics over time.
Brookfield is also highly proficient at generating profits when it chooses to sell fully developed assets. It then "recycles" this cash into new, higher-return projects. This virtuous cycle has created stronger returns for investors than if Brookfield were to simply hold on to all the projects it builds and acquires.
Looking ahead, the clean energy giant's investment opportunities are nearly endless. From climate change concerns to calls for greater energy security to technological advances that are driving down the costs of renewable power, there are a host of factors that are fueling demand for clean energy projects. And like Kinder Morgan, Brookfield stands to benefit from the AI-driven surge in electricity demand. In all, management has identified roughly $100 billion in potentially lucrative acquisition candidates.
Brookfield Renewable has grown its cash payout to investors by 6% annually for nearly a quarter century. With its well-stocked investment pipeline set to drive its profits steadily higher, that impressive streak is likely to extend well into the future.
