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The key to successfully investing in dividends is to buy stocks that raise their dividends every year. That way, you are keeping pace with or beating inflation and maintaining or increasing your buying power every year.

Think about it this way. If a product costs $100 this year and inflation is 5%, that product will cost $105 next year. If you receive $100 in dividends this year and your dividend increases by 8% next year, you will receive $108. So the increase in dividends will allow you to keep up with (and even beat) inflation and afford the new $105 price tag.

So it’s important to find stocks where the dividends increase annually.

The energy sector is a great place to look for them.

Oil and gas stocks tend to have solid dividend yields because they generate a lot of cash flow. A well-managed energy company grows its cash flow or at least manages it well enough to increase the payout to shareholders each year.

Here are a few energy stocks that investors who want to grow their income every year can take a look at. Each of these companies' free cash flow is at a 10-year high.

• Chevron (NYSE: CVX) is an oil giant that I added to the Instant Income Portfolio in my Oxford Income Letter newsletter two years ago. Since then, it is up about 104%. The company’s nearly $38 billion in free cash flow makes its $11 billion in dividends very affordable.
• Chevron has an impressive dividend-raising history – with 33 straight years of increases beginning in 1990. The dividend has grown at a compound annual growth rate of nearly 7%. The $1.51 per share quarterly dividend equals a 3.7% yield.
• One Gas (NYSE: OGS) is a gas utility that serves more than 2 million people in Kansas, Oklahoma, and Texas. In 2022, it generated nearly $1 billion in free cash flow while paying out just $133 million in dividends, so it has plenty of room to raise the dividend in 2023.
• Considering it has lifted the dividend for nine straight years, it is very likely to continue to do so.
• One Gas has raised its dividend by a compound annual growth rate of 9.8% since 2014 – more than enough to beat inflation. The current yield is 3.3%.
• Phillips 66 (NYSE: PSX) refines and transports oil. The $8.6 billion in free cash flow in 2022 easily covered the $1.8 billion the company paid to shareholders in dividends.
• Phillips 66 has increased its dividend every year for the past 12 years. Over the past 10 years, the company has boosted the dividend by an average of 10.4% per year. The stock yields 4.2%.

Owning dividend growth stocks is a conservative and time-tested strategy for growing your income and your wealth. The energy sector is a prime spot to search for dividend growth stocks.

Good investing.

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