3 Top Dividend Stocks to Buy in September

Key Points

• NextEra Energy is a unique blend of utility and clean energy company, offering an attractive yield and fast-growing dividend.

• Chevron is a financially strong integrated oil giant with an appealing yield and improving business fundamentals.

• Enterprise Products Partners is a North American midstream giant with a hefty yield.

• 10 stocks we like better than NextEra Energy ›

As the month of September gets underway, dividend investors looking for new opportunities shouldn't be put off by the lofty levels of the broader market. Sure, the S&P 500 index (SNPINDEX: ^GSPC) is near all-time highs, but there are still some very attractive high-yield stocks hiding under the surface.

Three of the most attractive buys right now in the energy sector could be NextEra Energy (NYSE: NEE), Chevron (NYSE: CVX), and Enterprise Products Partners (NYSE: EPD). Here's why.

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1. NextEra Energy has an attractive yield, relatively speaking

The S&P 500 index's dividend yield is a miserly 1.2% or so. Utility NextEra Energy's dividend yield is more than twice as high, at 3.1% or so. The average utility, meanwhile, has a yield of roughly 2.7%. So, while NextEra Energy's yield may not be as high as some investors might like, it is still a very attractive yield compared to relevant benchmarks.

That said, the really exciting story here is the dividend growth. During the past decade, NextEra's dividend has increased at a 10% annualized clip. That's good for any company, but particularly good as the utility sector is known for more for slow and steady growth. NextEra expects to raise the dividend by 10% a year through at least 2026. The 6% to 8% earnings growth that is backing the dividend increases is expected to last through at least 2027. In other words, strong dividend growth is likely to continue beyond the current projection.

Two things are driving that growth. First is the company's core regulated electric utility operations in Florida. This state has benefited for years from in-migration. More residents means more customers and more demand. But NextEra has a second business in the mix, since it is also one of the world's largest solar and wind companies. This division is the growth driver and given the energy transition going on, it will likely remain a growth driver for years to come. If you like growth and income stocks, high-yield NextEra Energy should be on your list in September.

2. Chevron has a high yield and a resilient business

Integrated energy giant Chevron's dividend yield is about 4.3%. The average energy stock's yield is roughly 3.3%. Like NextEra, Chevron looks like a dividend stock with a relatively attractive yield. It surpasses the 4% yield mark that many dividend investors use when looking for investments. So it might be more tempting than NextEra Energy.

Adding to the attraction here is the fact that Chevron has increased its dividend for 38 consecutive years. This is despite the fact that Chevron operates in the commodity-driven energy sector, where oil prices have a huge impact on financial performance. Using an integrated model, which provides exposure to the entire energy value chain, and a focus on a strong balance sheet, with a low debt-to-equity ratio of 0.2, both help Chevron keep the dividend growing. Basically, its business is resilient to the industry's typical swings.

But the real linchpin here is the fact that Chevron's business foundation is getting stronger. First, after a long and difficult effort, the company's troubled acquisition of Hess has been completed. That's good for growth. And second, the company's Venezuelan operations, which can be a bit of a political headache, are starting to function more normally again. This high-yield and reliable energy business is finally working from a position of strength again.

3. Enterprise Products Partners is a tortoise with an ultra-high yield

Master limited partnership (MLP) Enterprise Products Partners' distribution yield is a mighty 6.8%. And the distribution has been increased for 27 consecutive years. That combination will probably be appealing to most dividend investors.

Enterprise's business is built from the ground up to support its distributions. It has an investment-grade rated balance sheet. And its energy business is squarely in the midstream, where a toll-taker model is used. Enterprise owns vital energy infrastructure assets, like pipelines, for which it charges usage fees. Those fees are tied to volume, not energy prices, making cash flows fairly reliable through the energy cycle.

That said, there is one potential problem. While NextEra is known for being a dividend-growth hare, Enterprise is known for being a distribution-growth tortoise. Slow and steady distribution growth is likely the best you can expect, but given the lofty starting yield, that probably won't upset dividend investors looking to maximize the income they generate today.

Plenty of great options for dividend investors

The S&P 500 index is a top-level view of the market and frequently, one that is driven by a small number of large companies. There are always plenty of attractive dividend stocks hidden under the surface. Right now some of the best might be NextEra, Chevron, and Enterprise Products Partners. As September gets underway, you should probably take the time to get to know each one of these energy stocks.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron and NextEra Energy. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.