It’s easy to like dividend stocks. The obvious reason is that they provide regular income. Many dividend payers also offer growth through increased income streams and the potential for capital appreciation.
enterprise product partner (EPD 0.31%), Onoku (OKE 0.37%)and Brookfield Renewable (BEP -0.43%) (BEPC -0.08%) For some Fool.com contributors, it stands out as a great option for income-seeking investors. Here’s why anyone interested in dividends should take a closer look at this trio.
Enterprises are happy to collect fees
ruben greg brewer (Enterprise Product Partner): The energy sector is typically divided into three segments: upstream (drilling), midstream (pipelines), and downstream (chemicals and refining). Two of them, upstream and downstream, are highly volatile as they are primarily driven by commodity prices. The other is midstream and is more reliable as it provides stable fee income. Enterprise Products Partners operates in the midstream.
Enterprise owns a large collection of critical energy infrastructure in North America and helps move energy around the world. The demand for oil and natural gas, and the products into which they are converted, is far more important to Enterprise’s financial performance than the prices of the products that move through the system. Even when oil prices are low, energy demand remains strong due to the importance the fuel plays in the global economy. Charging small fees for the use of pipelines, storage, processing, and transportation assets is not sexy, but it is reliable.
The proof is in Enterprise’s distribution, which has increased every year for 25 years. Although dividend growth is likely to be slow, those looking to maximize the return their portfolio generates will appreciate his massive 7% yield on offer here. And that yield is backed by an investment-grade rated balance sheet and a high 2023 dividend coverage ratio of 1.7. In other words, the risk of the distribution being cut seems very low, but the chance of a slower, more steady increase in the distribution seems very high.
Landmark acquisition drives dividend growth
matt dilalo (Onek): Oneok is one of the most durable dividend stocks in the midstream industry.of pipeline company has delivered stable dividends and growth for more than a quarter of a century. Oneok hasn’t increased its dividend every year, but over the past 10 years he has grown more than 150%, significantly outpacing its peers.
The company expects to continue increasing dividends going forward. Onuku enters a year of change. The company completed its $18.8 billion acquisition of Magellan Midstream Partners last September, creating a more diversified midstream company. The transaction provides a significant initial financial boost, with cost savings and other commercial synergies resulting in measurable revenue growth over the next few years.
In addition, the company has several high-return expansion projects under construction and development. The company recently approved a $355 million project to expand capacity on the Elk Creek Pipeline, which is scheduled to begin service in the first quarter of next year. Also, construction of the Saguaro Connector Pipeline is expected to be approved this year. These and other projects will provide additional cash flow in the future.
Oneok aims to return 75% to 85% of its operating cash flow after capital expenditures to shareholders through dividends and share repurchases. It plans to retain the remainder to strengthen its already strong balance sheet. The company expects to increase its dividend by 3% to 4% annually. 2024 started with a 3.7% dividend increase, and the yield is now over 5%. With its high yield and visible growth, Oneok is ideal for those who like dividends.
powerful source of income
Neha Chamaria (Brookfield Renewable): There are several high-yield stocks in the energy patch, but if I had to pick one stock today, it would be Brookfield Renewables. That’s because while the stock’s track record reflects dividend stability, its growth plans suggest that dividends tend to grow over time, along with cash flow. In other words, Brookfield Renewable’s yield is not only high, but it also looks safe and reliable. Brookfield Renewable Partners’ stock currently has a yield of 6.3%, while the company Brookfield Renewable Corporation’s stock has a yield of 5.9%.
It’s a simple business model. Brookfield Renewable acquires and operates renewable energy assets and sells the electricity generated under long-term contracts. Electricity demand is highly cyclical, allowing the company to generate stable and predictable cash flows. In fact, nearly 90% of Brookfield Renewable’s cash flow is contractual, with an average contract length of 13 years. Additionally, electricity prices are indexed to inflation, allowing your company to steadily increase its profits.
For example, Brookfield Renewable expects its funds per unit operations (FFO) to increase 2% to 3% annually from 2023 to 2028 due to rising inflation. Add in improved margins, development pipeline, and potential acquisitions, and the company’s FFO per unit could increase. Easily grows more than 10% per year over the period. This should give Brookfield Renewable plenty of room to increase its dividend by between 5% and 9% annually. Given the company’s strong balance sheet, vast project pipeline, and commitment to increasing dividends, this means shareholders can earn double-digit returns on Brookfield Renewable stock each year. This makes a very compelling case for considering this high-yield stock today.
Matt DiLallo holds positions at Brookfield Renewable, Brookfield Renewable Partners, and Enterprise Products Partners. Neha Chamaria has no position in any stocks mentioned. Reuben Greg Brewer has no position in any stocks mentioned. The Motley Fool has a position in Brookfield Renewables and recommends Brookfield Renewables. The Motley Fool recommends Brookfield Renewable Partners, Enterprise Products Partners, and Oneok. The Motley Fool has a disclosure policy.
