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One of the biggest complaints from Wall Street is the lack of yield available today. Investors are taking on the additional risk of junk-rated bonds just to get a decent yield. Yet there are a few stocks with solid businesses and strong yields, and Helmerich & Payne (HP +3.21%) is probably one of them with its long track record of dividend raises, and the ability to weather the ups and downs of the market. If the company's yield isn't enough for you, the list of alternative investments gets awfully short.
Let's take a look at why Helmerich & Payne has a dividend that ranks among the top dividend stocks to own in the energy industry, and two potential candidates to look at if Helmerich & Payne isn't right for you.
It's a hard dividend to top
On the surface, Helmerich & Payne doesn't seem like a company that would be a great dividend investment. It's in an industry that's rife with boom and bust cycles, and it's hard to get pricing power because the producers that rent rigs from Helmerich & Payne and others hold most of the cards.
Despite these challenges, Helmerich & Payne has found a way to generate a pricing premium to its peers by owning a fleet of rigs that are newer and more capable of handling more complex drilling work. It also helps that the company has continually kept more cash on the books than total debt to ensure that any operational profit doesn't get eaten up by interest and flows to the bottom line. Those are the fundamental principles that have allowed the company to raise its dividend every year for 42 years now.
On top of its solid business and stellar history, the company also has the second-highest dividend yield among the dividend aristocrats, at 4.8% today. Only healthcare real estate investment trust HCP has a higher yield among the dividend aristocrats. So for a company to top Helmerich & Payne, there needs to be a better yield and at least a reasonable reason to think that yield will have room to grow for years to come. With that in mind, here are two stocks to consider.
High yield and longer growth runway
I'll be the first to admit that investing in a company with such a short dividend history as 8point3 Energy Partners (CAFD +0.00%) doesn't necessarily measure up to a company with a 40-year history of rewarding shareholders, but 8point3 has some of the qualities that investors want when it comes to building a solid dividend investment with some ample room for growth in the future.
One of the first things that stand out is a solid revenue base. The company owns and operates about 530 megawatts of solar facilities ranging from utility, commercial, and residential scale projects. All of these assets in its portfolio have contracts with a weighted average length of 21 years, so there isn't much fear that the company will see a deterioration of its revenue stream. Also, with both SunPower and First Solar as its co-sponsoring entities, 8Point3 has a strong suite of new projects in the wings to support growth over the long term.
The biggest question for the company is how it manages the balancing act of growing a high-yield dividend -- it's at 6.5% today -- while maintaining balance-sheet discipline. It's worth keeping this one on the radar for at least a couple of quarters to see how this dynamic plays out, but if it can execute on this, then it certainly seems like a dividend that has a better yield than Helmerich & Payne, and has the potential to grow much more in the coming years.
Potential to be highest-yielding dividend aristocrat
We're still a few years away, but with 18 years of dividend raises under its belt since its IPO, Enterprise Products Partners (EPD +0.27%) is approaching a time where it's in the conversation as a dividend aristocrat. Based on the way it has arrived at its 18-year dividend streak, it's hard to see the company not getting to this status that is held in high regard among so many investors.
Enterprise's ascension to one of the nation's largest energy pipeline and logistics players has been built with three core principles:
- Generate revenue through fixed fees that take the guesswork of commodity prices out of the equation.
- Invest in high-return assets that complement and add value to the existing network.
- Balance the need to pay shareholders a generous dividend with the capital needs for growth and a prudent balance sheet.
Throw in the recent shale boom and the massive need for more energy infrastructure, and you have a company that has seen its dividend grow 400% since its inception, and has trounced the S&P 500 on a total-return basis.
EPD Total Return Price data by YCharts.
With a dividend yield just a hair shy of 6%, Enterprise Products will easily be the highest-yielding dividend aristocrat when it gets there. For someone looking for a dependable investment in energy with a higher yield than some of the slower-growing integrated oil and gas companies, Enterprise is definitely worth a look.
