2022 Still Got You Down? 3 Dividend Stocks to Perk Up Your 2023 Income Stream.

Last year was one for the record books. It was one of the worst years for investors in decade as both stocks and bonds were down sharply. Because of that, portfolio values dropped, which likely has many investors feeling down about their investments. 

One way investors can perk up their portfolio is by adding some more income to boost their tangible return in the new year. Three dividend stocks favored by a few Fool.com contributors are Magellan Midstream Partners (MMP 0.44%), Energy Transfer (ET 1.27%), and NextEra Energy Partners (NEP 0.28%). Here’s why they think these companies are great income options to consider adding to your portfolio this year. 

Doubling down on oil

Reuben Gregg Brewer (Magellan Midstream Partners): Some midstream companies, like Enterprise Products Partners or Kinder Morgan, have broadly diversified portfolios. Others, like Magellan Midstream Partners, are tightly focused on one business. In Magellan’s case that is moving oil and refined products, such as gasoline and diesel. In many ways this master limited partnership (MLP) is a bet that oil isn’t going to be displaced overnight by clean energy, which is a completely reasonable assumption. Even the International Energy Agency expects demand for carbon fuels to keep growing until at least 2040.

If you can get on board with that logic, then Magellan’s hefty 7.9% distribution yield should be of interest to you. And it’s important to note that the distribution has been increased every single year since the MLP’s initial public offering in 2001. Magellan clearly places a high value on returning cash to its unitholders. That said, the target distributable cash flow coverage ratio is around 1.2 times, which is modest compared to Enterprise and Kinder Morgan, which are both around 1.8 times. That said, 1.2 times was historically considered a strong figure in the pipeline space and Magellan’s ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) is among the lowest in the midstream industry. It is not taking on undue risk.

The fat yield is going to be your main source of return here, but if you are a dividend investor that’s probably going to be perfectly fine.

Hitting an inflection point

Matt DiLallo (Energy Transfer): While last year was a brutal one for the broader market, it was a great time for Energy Transfer investors. The master limited partnership’s earnings soared thanks to strong conditions in the energy markets and a boost from recently completed organic investments and acquisitions. That gave it enough money to cover its distribution (which it increased by 70% last year) and invest in expanding its energy infrastructure network with room spare, allowing it to achieve its leverage target. These catalysts gave its units the fuel to skyrocket 44% last year

Energy Transfer appears poised for another good year in 2023. With its leverage target achieved, the company has even more financial flexibility. Because of that, it should be able to deliver on its goal of returning its distribution to its former peak of $0.305 per unit each quarter. That implies the company should be able to increase its payout by another 15% this year. With units already yielding 8.4%, it can boost an investor’s income stream in 2023. 

That payout could keep rising. Energy Transfer has several expansion projects under construction that should help grow its cash flow as they come online. It has more developments in the pipeline, including being close to approving its Lake Charles liquefied natural gas export project. The company also has the financial flexibility to continue making value-enhancing acquisitions. With its balance sheet back on solid ground, Energy Transfer will likely return most of its growing distributable cash flow to investors through higher distributions and unit repurchases. That combination of growth and increasing cash returns could give units the fuel to keep rising in 2023 and beyond.    

A hugely reliable dividend growth stock

Neha Chamaria (NextEra Energy Partners): NextEra Energy Partners is one of the most powerful dividend stocks to fire up your passive income stream, simply because this stock has everything an income investor should seek: stable cash flows, solid growth potential, and compelling dividend growth.

After growing its dividend per share by more than 50% in the past five years, NextEra Energy Partners expects it to grow at a compound annual rate of anything between 12% and 15% through 2025. The clean energy giant believes that growth can support a dividend yield of around 4%, which means you could earn at least 16% annualized total returns on this stock in 2023 and beyond. As good as it sounds, the best part is that NextEra Energy Partners knows what it’s aiming for, and knows how to get there.

You see, NextEra Energy Partners owns a huge portfolio of clean energy assets, most of which generate stable cash flows under long-term contracts. NextEra Energy Partners banks on acquisitions for growth, but since it’s backed by NextEra Energy, it primarily acquires ownership interests in clean energy projects belonging to the parent company, with a focus on assets that it believes will boost its cash flows and support dividend growth in the future. In the third quarter, for example, NextEra Energy Partners acquired a 67% stake in a battery storage facility from NextEra Energy’s clean energy arm.

It’s a win-win for shareholders in NextEra Energy Partners as the parent’s backing means they don’t have to worry about the company’s growth opportunities, and as the company grows, so should its cash flows and dividends.


Matthew DiLallo has positions in Energy Transfer, Enterprise Products Partners, Kinder Morgan, NextEra Energy, and NextEra Energy Partners and has the following options: short February 2023 $11 puts on Energy Transfer. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kinder Morgan and NextEra Energy. The Motley Fool recommends Enterprise Products Partners and Magellan Midstream Partners. The Motley Fool has a disclosure policy.