2 Brilliant Energy Stocks to Buy Now and Hold for the Long Term

Key Points

• ConocoPhillips expects to complete several long-cycle projects over the next few years.

• MPLX also has several long-term growth projects in its backlog.

• This visible growth should give these energy stocks the fuel to produce strong total returns in the coming years.

• 10 stocks we like better than ConocoPhillips ›

Energy demand continues to grow. That enables energy companies to invest capital in expanding their businesses.

ConocoPhillips (NYSE: COP) and MPLX (NYSE: MPLX) currently have expansion projects scheduled to come online through 2029, supporting sustained growth for years to come. Their robust growth profiles and record of delivering steadily rising high-yielding dividends make them brilliant energy stocks for investors to buy and hold for the long haul.

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Doubling free cash flow by 2029

ConocoPhillips believes it has built one of the deepest, most durable, and diverse portfolios in the oil and gas industry. The oil company has one of the lowest cost resource positions in the sector, positioning it to generate significant cash flow at lower oil prices. Its ability to generate cash will only strengthen in the coming years.

One factor driving that view is its acquisition of Marathon Oil. While that deal closed late last year, it will continue to pay dividends for investors for years to come. ConocoPhillips is already on track to deliver $1 billion in cost synergies from the deal by the end of this year, more than double its initial expectation. It now anticipates capturing another $1 billion of cost and margin enhancements from that acquisition by the end of next year.

Additionally, the oil company is investing heavily in longer-cycle capital projects that will drive production and free-cash-flow growth over the next several years. It has three liquified natural gas (LNG) investments scheduled to come online between 2027 and 2028. It's also investing over $7 billion to develop the Willow oil project in Alaska, which should start producing in 2029.

The company expects these longer-cycle projects to add $6 billion of incremental annual free cash flow by 2029, assuming oil prices average $70 per barrel that year. Adding the additional boost from Marathon expected next year, the total rises to $7 billion by the end of the decade. That has the company on track to double its annual free cash flow compared to this year's level.

The coming surge in the company's free cash flow will enable it to return even more money to shareholders. ConocoPhillips expects to grow its 3.3%-yielding dividend at a well-above-average rate in the coming years, aiming to deliver annual dividend growth within the top 25% of companies in the S&P 500. It also plans to repurchase billions of dollars of its stock each year.

Visible growth through the end of the decade

MPLX operates a diversified midstream business, encompassing pipelines, processing plants, storage facilities, and export terminals. These assets generate stable and predictable cash flow backed by long-term contracts and regulated rate structures, which support the master limited partnership's (MLP) 7.6%-yielding distribution. The MLP also provides investors with some tax advantages via the Schedule K-1 Federal Tax Form it sends each year.

The company expects to grow its earnings at around a mid-single-digit annual rate in the coming years. One factor fueling that view is its growing backlog of commercially secured expansion projects. MPLX is constructing several new pipelines, processing plants, NGL fractionators, and an export terminal, with projects on track to enter commercial service every year through 2029. This schedule provides clear visibility into its future growth.

The MLP has also made several acquisitions this year. It bought stakes in two large-scale pipelines and purchased two gathering and processing companies. The largest deal was its $2.4 billion purchase of Northwind Midstream. These acquisitions will immediately add incremental cash flow, while several deals have added to its longer-term growth profile. MPLX has a very strong financial profile, providing it with ample capacity to invest in additional expansion projects and make further acquisitions.

The growing cash flows from expansion projects and acquisitions should support continued annual distribution increases. MPLX has raised its payment every year since going public in 2012, including delivering more than 10% compound annual growth since 2021. The MLP's combination of income and growth should give it the fuel to produce a robust total return in the coming years.

Brilliant long-term buys

With strong growth project pipelines providing visibility through the end of the decade, ConocoPhillips and MPLX stand out as wise long-term investments. They should have ample fuel to grow their high-yield dividends for many years to come. That combination of growth and income makes them great energy stocks to buy and hold for the long haul.

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Matt DiLallo has positions in ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.