2 undervalued dividend stocks with growing payouts in 2026

Investing in quality dividend stocks is a proven strategy to create a low-cost stream of passive income. 

It’s crucial to identify companies that generate stable cash flows across business cycles. Ideally, these cash flows should increase each year, which translates to consistent dividend hikes. 

Dividend-paying stocks have historically experienced lower volatility than other stocks and are often issued by more stable, mature companies, according to Fidelity.

“Dividend-paying stocks reward shareholders with periodic payments of their profits, in the form of cash or additional shares,” the report states.

“Dividends can potentially provide a steady stream of income and contribute to investors’ total return. An added bonus: Dividend-paying stocks have historically often experienced less volatility than other stocks, and may be issued by more stable, mature companies.”

Given these factors, two midstream energy partnerships remain top investment options in June 2026 for income-seeking investors.  

These include Energy Transfer and Enterprise Products Partners.

Both reported standout Q1 2026 results, both raised their distributions, and both trade at valuations that look attractive relative to their cash flow growth.

Here is what investors need to know.

Energy Transfer offers a 7.2% dividend yield

Energy Transfer (ET) is one of the largest energy infrastructure companies in the United States. It moves natural gas, crude oil, natural gas liquids (NGLs), and refined products through an enormous network of pipelines, terminals, and storage facilities.

• In Q1 of 2026, Energy Transfer reported adjusted EBITDA of $4.9 billion, up from $4.1 billion in the year-ago period. 
• Distributable cash flow rose from $2.3 billion to $2.7 billion. 

The quarter included record midstream gathering volumes, NGL fractionation volumes, NGL export volumes, and crude oil transportation volumes.

ET raised its 2026 full-year adjusted EBITDA guidance to a range of $18.2 billion to $18.6 billion, up from its prior range of $17.45 billion to $17.85 billion.

Related: Energy Transfer stands out as high-yield dividend stock

ET is part of the AI buildout, as it supplies natural gas to power plants and data centers.

The company signed long-term agreements to supply gas to the Nexus Hubbard AI hyperscale campus in Central Texas and entered a letter of intent for a data-center project in Arkansas.

Those contracts generate fee-based revenue and are independent of commodity prices.

Management also emphasized its $5.5 billion to $5.9 billion organic growth capital budget for 2026, covering projects including the Desert Southwest Pipeline, the Hugh Brinson Pipeline, new Permian Basin processing plants, and Florida Gas Transmission (FGT) expansions.

ET dividend snapshot:

• Annualized distribution per unit: $1.35
• Quarterly distribution(Q1 2026): $0.3375 per unit
• Distribution yield: Approximately 7.2%
• Distribution growth (10-year average): Approximately 3.2% per year
• DCF cash flow per share in 2026 (e): $2.78
• Payout ratio: Less than 50%

ET is generating ample DCF to support its current distribution. Moreover, DCF per share is projected to expand to $3.58 per share in 2030. 

EPD stock is a Dividend Aristocrat

Enterprise Products Partners (EPD) operates nearly 50,000 miles of pipeline and is one of the most consistent dividend payers in the midstream sector.

In Q1 of 2026, EPD grew its adjusted EBITDA by 10% to $2.7 billion. 

Its operational DCF of $2.1 billion provided 1.8x coverage of distributions declared during the quarter. 

The partnership retained $1.5 billion in excess DCF after distributions. 

Enterprise’s resilience is highlighted by its streak of 27 consecutive annual distribution increases, making it a Dividend Aristocrat. 

Moreover, its distribution was covered by distributable cash flow by a very solid 1.7x in 2025, so there’s a lot of room for adversity before the distribution would be at risk.

EPD is on track for 28 consecutive years of distribution growth in 2026, which showcases the durability of the fee-based business model and the quality of the asset network.

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New assets, including the Bahia NGL pipeline, Fractionator 14, and three Permian natural gas processing plants, continued to ramp up during Q1. 

EPD processed 8.3 billion cubic feet per day of natural gas, up 7% year over year, and fractionated 1.9 million barrels per day of NGLs, up 16%. 

It loaded 2.3 million barrels of hydrocarbons per day at its export docks, up 15%.

The conflict in the Middle East has added a near-term tailwind. EPD’s Co-Chief Executive Officer Jim Teague said on the earnings call that the supply disruption “creates a lot of benefits that Enterprise can capture.” 

The company noted that ethane-to-ethylene cracking margins jumped from about $0.07 per pound before the conflict to $0.23 per pound, making U.S. feedstocks highly competitive globally.

EPD stock dividend snapshot:

• Annualized distribution per unit: $2.20
• Quarterly distribution (Q1 2026): $0.55 per unit
• Distribution yield: Approximately 6%
• Distribution growth (10-year average): Approximately 3.4% per year
• DCF per share 2026 (e): $4.15
• Payout ratio: 53%

Are the dividend stocks undervalued?

Both ET and EPD are structured as MLPs, meaning they pass most of their income directly to unitholders as distributions. 

The fee-based nature of their businesses means they earn revenue from the volumes they transport and store, not primarily from oil and gas prices.

ET stock is priced at 6.8 times forward DCF per share, which is cheap, given that it is projected to raise cash flow by 8.5% annually through 2030. 

EPD stock is priced at 8.6 times forward DCF per share. This is reasonable, since it’s expected to raise cash flow by 6.2% annually through 2030. 

The Dow Jones US Dividend 100 Index, which includes large- and mid-cap dividend stocks, is up about 15% in 2026, topping the major indexes. 

Dividend stocks have been outperforming in a volatile market, and both ET and EPD fit the mold of businesses with stable, growing cash flows.

Both have multi-year capital project backlogs supported by long-term contracts, with management commentary pointing to continued EBITDA and distribution growth through the end of the decade and beyond. 

For investors seeking reliable income in an uncertain market, that combination of yield, growth, and infrastructure scale is worth a closer look.

Related: Warren Buffett has a message on energy prices for all Americans