These Top Dividend Stocks Are Adding Even More Fuel to Their Growth Engines

Demand for natural gas will surge in coming years. Catalysts like the onshoring of manufacturing, the electrification of everything, and artificial intelligence (AI) data centers will drive up power demand. That should fuel significant incremental demand for natural gas.

This outlook is driving companies to lock up additional gas supplies to fuel their energy needs. That's allowing pipeline companies to approve new projects to expand their systems to support higher gas volumes. These projects will grow their cash flows, giving them more fuel to increase their dividends.

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Traversing through Texas

WPC, a joint venture (JV) between WhiteWater, MPLX (NYSE: MPLX), and Enbridge (NYSE: ENB), is partnering with another midstream company, Targa Resources (NYSE: TRGP), to build the Traverse Pipeline. The 160-mile pipeline will transport up to 1.75 billion cubic feet of natural gas per day along the Gulf Coast between Agua Dulce in South Texas and the Katy area. The pipeline will source gas from the Whistler, Blackcomb, and Matterhorn Express pipelines, all owned by one or more of the partners. It will enhance the flow of gas in the region, giving shippers greater access to premium markets, like liquefied natural gas (LNG) export terminals.

The companies expect the project to enter commercial service in 2027. They've secured long-term transportation agreements with investment-grade shippers for most of the project's capacity. This should supply them with very stable cash flows.

The project builds on the extensive gas infrastructure owned or under development by the WPC JV. That entity owns the Whistler Pipeline and 70% stakes in the Rio Bravo, Blackcomb, Traverse, and ADCC pipelines. It also has a 50% interest in the Waha Gas Storage facility.

These pipelines will help transport growing natural gas volumes produced in the Permian to higher-value markets along the Gulf Coast. For example, Rio Bravo will transport gas to NextDecade's LNG export facility at the Port of Brownsville in South Texas starting next year. Meanwhile, the other pipelines are increasing the flow of gas to industrial and other markets along the Gulf Coast.

Adding more fuel to their dividend growth engines

MPLX will hold the biggest stake in the Traverse pipeline among the three publicly traded pipeline companies. It has a 30.4% interest in WPC and will own an additional 12.5% direct interest in Traverse via its stake in the Blackcomb Pipeline joint venture. It adds to the master limited partnership's (MLP) growing backlog of expansion projects. The company should get a boost from the Blackcomb and Rio Bravo pipelines when they enter commercial service next year.

Meanwhile, it's building a Gulf Coast fractionation complex (2028 and 2029 in-service dates) and has a strategic partnership to develop an LPG export terminal, which should enter service in 2028. It also has some natural gas processing plants entering commercial service over the next two years. These projects should give the MLP more fuel to increase its high-yielding distribution (more than 7% current yield). It has grown its payout at a more than 10% compound annual rate since 2021.

Enbridge will get the next biggest boost from Traverse, which it will own through its 19% interest in WPC. The Canadian energy infrastructure giant has a massive backlog of commercially secured capital projects that should come online through the end of this decade. They include liquids pipeline growth projects, several new gas pipelines, gas utility expansions, and renewable energy projects. They should give Enbridge plenty of fuel to continue growing its high-yielding dividend (nearly 6% yield), which it has done every year for the past three decades.

Finally, Targa Resources will own a 17.5% interest in Traverse via its stake in the Blackcomb JV. The midstream company has several expansion projects under construction, including six additional natural gas processing plants, two more NGL fractionators, and some pipeline projects. These projects should enter service through 2027.

While Targa has a lower dividend yield (over 1.5%), its payout has grown rapidly. It boosted its dividend 33% this year, which followed a 50% increase last year. Given the growth ahead for its cash flow, Targa could continue delivering robust dividend growth.

Great dividend stocks

Natural gas infrastructure companies are benefiting from the expected surge in demand for the fuel in the coming years. It's providing them with a growing list of expansion projects, which should drive their cash flows higher in the coming years. That should enable them to continue increasing their dividends, making them compelling options for those seeking to collect rising dividend income.

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Matt DiLallo has positions in Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.