Here Are My Top 2 High-Yield Energy Dividend Stocks to Buy Now

Key Points

The highest-yielding dividends in the energy industry tend to come from pipeline MLPs. Enterprise Products Partners is an MLP with lots of upcoming expansion projects. MPLX is an MLP with a 7.4% yield and a payout that has grown every year since 2012.10 stocks we like better than Enterprise Products Partners ›

If you're looking for stocks that pay big dividends, the energy sector is a great place to start. While high dividend yields can be found in any sector, it's not uncommon to find quality energy companies paying sustainable yields of more than 7%.

Here are two of my favorite high-yielding energy dividend stocks that should keep rewarding their shareholders with ever-increasing payouts for decades.

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1. Enterprise Products Partners: 7.1% yield

The highest-yielding stocks in the energy space usually aren't actually "stocks" at all. They come from pipeline companies that are organized as master limited partnerships (MLPs). These special types of investments receive favorable tax treatment in exchange for paying out almost all of their operating cash flow as distributions to their unitholders (a process virtually identical to paying dividends to stockholders). And Enterprise Products Partners (NYSE: EPD) is one of the best-run MLPs around.

Pipeline MLPs charge other companies, like oil and gas producers and refiners, for using their assets. Every time a company moves crude oil, natural gas, or refined products through an MLP's pipelines or into its storage tanks, the MLP charges a fee.

There's a limit to how quickly the MLPs can raise those fees, though, so much of an MLP's growth comes from building or acquiring additional assets: more pipelines, more storage, more export terminals. Enterprise has excelled at increasing its footprint and the money it makes from its assets. It has increased the cash flow from its operations by more than 90% over the past 10 years.

And there's likely to be more where that came from. Enterprise is wrapping up some major expansion projects, including the major 550-mile Bahia Pipeline, which will travel from the Permian Basin to the Gulf Coast. This pipeline, together with the company's usual robust pace of acquisitions and multibillion-dollar slate of longer-term expansion projects, should provide plenty of additional cash flow to continue funding regular dividend increases.

2. MPLX: 7.4% yield

Another pipeline MLP offering a monster yield, MPLX (NYSE: MPLX) is similar to Enterprise in that both are well-managed MLPs with robust yields. Better still, both companies have plenty of coverage for their payouts. That means they take in more than enough operating cash flow to not only keep their distributions funded at current levels, but grow their payouts every year, something MPLX has done since it went public in 2012.

MPLX has several natural gas pipelines and processing plants in various stages of construction, including the newly announced Eiger Express natural gas pipeline, which has a daily capacity of 2.5 billion cubic feet per day. It supplements its organic expansions with acquisitions, including a $2.4 billion acquisition of a sour gas treatment business in Q3.

One thing investors should remember before investing in Enterprise or MPLX is that MLP ownership can come with some extra paperwork around tax time, especially if the investment isn't held in a tax-advantaged account. Otherwise, these two stable, secure companies are my favorite high-yield energy stocks right now for dividend investors.

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John Bromels has no position in any of the stocks mentioned. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.