Want Decades of Passive Income? 3 Energy Stocks to Buy Right Now, Starting With Energy Transfer.

If you're a retiree, income-focused, or conservative investor, dividend-paying stocks can be an excellent way to generate passive income from your portfolio.

Research from Hartford Funds and Ned Davis Research shows that dividend stocks play a significant role in investors' long-term returns. Their study finds that reinvested dividends, which compound over time, account for 85% of the S&P 500's cumulative return since 1960. Companies that steadily grow their dividend payments outperform those that don't and are less volatile.

The energy sector can be an excellent source of dividend-paying companies. Pipeline operators have reliable cash flows backed by long-term deals, including Energy Transfer (TXSE: ET) and Enbridge (NYSE: ENB). Meanwhile, integrated oil and gas giant ExxonMobil (NYSE: XOM) has an impressive history of dividend increases.

Here's why these three stocks are solid choices for income investors right now.

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Energy Transfer boasts a high dividend yield

Energy Transfer owns and operates a massive midstream energy network across North America. With over 140,000 miles of pipeline across 44 states, Energy Transfer moves natural gas, natural gas liquids (NGLs), and crude oil from production basins to processing plants, storage facilities, export terminals, and end users.

Its infrastructure provides a strong competitive advantage and gives Energy Transfer massive scale. Recreating Energy Transfer's infrastructure from scratch would require massive investment and would face regulatory challenges and other hurdles. As a result, Energy Transfer can command long-term, fee-based contracts, with 90% of its projected earnings this year coming from these agreements.

As a master limited partnership (MLP), Energy Transfer's income, gains, losses, and deductions flow directly to unitholders. This pass-through structure means tax reporting differs from that for traditional dividend stocks, where you typically receive a 1099-DIV. Instead, MLPs issue a Schedule K-1 that details the investor's share of business income and deductions, which can complicate tax filing.

For income-focused investors, pipeline operators can be an excellent option because these long-term contracts help insulate them from commodity price inflation. While its MLP structure can complicate taxes, it may be worth it for its impressive 6.6% distribution yield.

Enbridge is a pipeline operator with a long history of growing its dividend

Enbridge is another pipeline operator with assets spanning the U.S. and Canada, and its liquids pipeline network connects to roughly 75% of North America's total refining capacity. Unlike Energy Transfer, Enbridge operates as a C-Corporation, so U.S. investors receive a standard 1099-DIV come tax time, which may appeal to investors who want to avoid the added paperwork.

The company's appeal comes from its massive pipeline network, which connects one of the world's largest crude oil and natural gas reserves (the Western Canadian Sedimentary Basin) to North American refiners.

Another benefit of owning Enbridge is its long history of dividend raises. For 31 consecutive years, the pipeline company has raised its dividend. Over the past five years, Enbridge has returned 38 billion Canadian dollars (roughly $27 million) to shareholders and plans to return another $28.5 billion to $32 billion over the next five years.

ExxonMobil's cost advantage helps power its ever-growing dividend

ExxonMobil operates a massive integrated oil and gas business that spans the globe and the energy value chain. Its integrated business model is a major reason ExxonMobil has grown its dividend payout for 43 years, despite volatile energy prices. In the first half of this year, the company distributed $8.6 billion in dividends to shareholders and repurchased $10 billion of its own stock.

Exxon boasts some major structural advantages that make it an appealing oil major to own. For one, the company boasts ultra-low-cost "advantaged" assets that help it keep production costs low. This includes its position in the Permian Basin, strengthened by its 2024 acquisition of Pioneer Natural Resources, and its position in Guyana's low-cost Stabroek Block.

According to Exxon, its breakeven cost on its advantaged assets in Guyana and the Permian is about $40 per barrel, giving it a massive structural advantage over other oil producers. Long-term, Exxon hopes to lower its cost per barrel to $30 by 2030.

Since 2019, Exxon has achieved $16 billion in structural cost reductions and targets $20 billion by 2030, which should help control costs and fuel its growing dividend for investors for years to come.

Courtney Carlsen has positions in ExxonMobil. The Motley Fool has positions in and recommends Enbridge. The Motley Fool has a disclosure policy.