2 Top Dividend Stocks to Buy in October

Key Points

• Only 4% of S&P 500 companies have achieved ExxonMobil's level of annual dividend increases.

• Enterprise Products Partners has increased its payout for 27 straight years.

• Both companies should have ample fuel to continue growing their payouts.

• 10 stocks we like better than ExxonMobil ›

Many industries offer quality dividend stocks, but some sectors stand out for having many companies that deliver high yields and consistent dividend growth.

The energy sector, although often volatile, remains a strong source of high-quality dividend stocks. Many energy companies have consistently demonstrated their ability to maintain and grow payouts throughout the sector's ups and downs. ExxonMobil (NYSE: XOM) and Enterprise Products Partners (NYSE: EPD) exemplify this, offering high current yields and long records of dividend growth with visible paths to further dividend increases, backed by resilient strategies.

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Buying these top dividend stocks in October would be a smart move, as they are set to provide you with a reliable income that should continue growing for years to come.

Image source: Getty Images.

Visible growth through 2030

Few dividend stocks are as durable as ExxonMobil, which currently offers a 3.5% dividend yield -- nearly triple the S&P 500's level of less than 1.2%. The oil giant isn't just a standout in the energy sector; it maintains one of the most consistent dividend growth track records in the entire S&P 500. ExxonMobil has increased its payout for 42 consecutive years, a feat achieved by only about 4% of S&P 500 companies. That also leads the energy sector.

A few factors have contributed to Exxon's dividend resilience. The company has a large-scale, integrated business model (upstream, midstream, and downstream operations). The diversification acts as a natural hedge, as its downstream businesses (refining and chemicals) benefit from lower oil prices, while its large scale provides cost advantages. Exxon is also a financial fortress with one of the strongest balance sheets in the world, giving it the flexibility to borrow money during periods of lower oil prices to support growing investments and shareholder distributions.

ExxonMobil is investing about $140 billion through 2030 in major capital projects and its Permian Basin development program. Initiatives include new oil and gas developments in Guyana, expansions in refining and chemicals, and building lower-carbon businesses, such as lithium. These investments are expected to boost earnings by $20 billion and cash flow by $30 billion by 2030, supporting sustained dividend growth.

The coming expansion wave

Enterprise Products Partners currently has a 7% yield. The master limited partnership (MLP), which sends investors a Schedule K-1 Federal Tax Form each year, has increased its distribution for 27 straight years.

The energy midstream giant is in an excellent position to continue expanding its distribution payment. The company's integrated footprint of critical energy infrastructure assets generates predictable cash flow, primarily backed by long-term contracts and government-regulated rate structures. The MLP produced enough cash during the second quarter to cover its high-yielding payout by a comfortable 1.6 times. Enterprise Products Partners also has the strongest balance sheet in the energy midstream sector.

The MLP is using its financial flexibility to invest in organic expansion projects. It currently has $6 billion of growth capital projects under construction, all of which should enter commercial service by the end of next year. That gives the company lots of near-term visibility into its earnings growth over the next few years.

Meanwhile, the MLP has the financial flexibility to continue investing in organic expansion projects and making acquisitions as opportunities arise. It recently bought a natural gas gathering system from Occidental Petroleum for $580 million. As part of the deal, Enterprise will build a new gas processing plant to support Occidental's operations, which should come online at the end of the year. Future acquisitions could supply the MLP with incremental cash flow and additional growth opportunities.

Top-notch dividend stocks

ExxonMobil and Enterprise Products Partners have strong records of paying high-yielding and growing dividends. Both companies back their payouts with diversified businesses and strong balance sheets. Meanwhile, they have lots more growth ahead. That compelling combination makes them stand out as top dividend stocks to buy this October.

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Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Occidental Petroleum. The Motley Fool has a disclosure policy.