Finding the latest and greatest fad in investing can make for compelling reading -- and sometimes buying (we're looking at you, artificial intelligence stocks). But that doesn't mean less-sexy companies, such as those dealing in energy and electricity, should fall by the wayside. In fact, stocks like Kinder Morgan (KMI 0.56%) and American Electric Power (AEP -0.15%) are attractive in their own ways: namely, paying you to do nothing.
Two of our fool.com contributors believe these are stocks that you can buy and hold indefinitely and are especially alluring right now. Let's find out why.
Gas is still relevant in the energy transition
Lee Samaha(Kinder Morgan): It's no secret that investors can find high-yield opportunities in the gas pipeline sector. Kinder Morgan (with a current dividend yield of 6.4%) is one of them.
Still, there's usually a reason stocks carry such high yields, and in Kinder Morgan's case (as with the other midstream companies in gas transmission), it relates to the long-term demand for natural gas.
The International Energy Agency's outlook calls for a significant fall in gas demand between 2030 and 2050 in North America and a slight fall in world gas demand over the same period. That would not be great news for gas pipeline companies holding costly infrastructure as demand wanes.
That said, the recent evidence from leading industry figures indicates that the need for natural gas and liquefied natural gas (LNG) might prove more enduring than what the market is pricing into Kinder Morgan's share price.
For example, during energy equipment and services company Baker Hughes' earnings call recently, CEO Lorenzo Simonelli said, "We continue to see the potential for this LNG cycle to extend for several years with a pipeline of new international opportunities expanding project visibility out to 2026 and beyond." He added, "We've seen a number of opportunities internationally start to solidify for also '25 and '26," regarding natural gas and LNG projects.
While the future still belongs to renewable energy, there's a growing recognition that natural gas and LNG have a significant role to play, both in the energy transition and as a fuel to support renewable energy, which tends to be intermittent. That would be good news for Kinder Morgan and its passive income investors, since it would ensure many years of cash flow and dividends for investors.
Charge your passive income stream for the long haul with American Electric Power
Scott Levine (American Electric Power):One of the earliest rules that investors learn is that past performance doesn't guarantee future results. And while that's true, a company's history provides valid insight into those qualities that it values -- qualities embedded in the company culture that will likely remain fixed for years to come.
Take the regulated electric utility American Electric Power, for instance. The company has paid dividends in every quarter for the past 112 years. This impressive history of rewarding shareholders along with a juicy 4.1% forward-yielding dividend, a conservative business, and an inexpensive price tag all contribute to making American Electric Power a compelling stock to buy now.
The utility provides electricity to about 5.6 million customers in 11 states and operates the largest transmission and distribution networks in the United States. And it's not just the impressive reach that makes the company alluring: It operates primarily in regulated markets. This provides the company with clear sight into future cash flows, helping management to plan for capital expenditures such as infrastructure upgrades and dividends.
Digging into the company's financials, investors will find evidence of management's judicious approach to the dividend. Over the past 10 years, American Electric Power has averaged an 83% payout ratio.
Looking ahead, management expects to maintain an even more conservative approach, targeting a payout ratio of 60% to 70%. Further evidence of the company's firm financial footing can be found from Moody's, Standard & Poor's, and Fitch Ratings, all of which have assigned investment-grade credit ratings to American Electric Power.
For those looking to boost their passive income, now is a great time to click the buy button. Currently, shares of American Electric Power are hanging on the discount rack. The stock trades at 22.8 times trailing earnings, representing a discount to the S&P 500 price-to-earnings ratio of 26.4.
Are these tickers right for you?
Whether you're taking your first steps to build long-term wealth or you're interested in carving out a niche of your portfolio for reliable income stocks, Kinder Morgan and American Electric Power offer high-yield dividends that are particularly appealing right now.
More-conservative investors might find American Electric Power more desirable considering its exposure to regulated markets, while Kinder Morgan will pique the interests of those eager to be in the oil and gas business.
Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kinder Morgan, Moody's, and S&P Global. The Motley Fool has a disclosure policy.
