Container Terminal At Dusk

Image source: Getty Images.

From the conclusion of the financial crisis through the middle of last year, Textainer Group Holdings (NYSE:TGH) was one of the market's better dividend payers. The company nearly doubled its payout over a five-year period, while consistently offering new investors the opportunity to earn a more than 4% yield.

But that eye-catching dividend was too good to be true. Slowing global trade caught the entire container shipping industry off guard, which resulted in weaker prices for both container leases and the sale of old containers. These and other factors weighed on Textainer Group Holding's financial results, forcing the company to cut and then suspend its dividend.

While Textainer wants to reinstate the dividend when market conditions improve, the company's future payout probably will not be as generous as it had been in the past because of the cyclicality of the container leasing market, as well as the company's financial issues. As a result, income investors are better off forgetting about Textainer Group Holdings and instead considering Brookfield Renewable Partners (NYSE:BEP), W.P. Carey (NYSE:WPC), or Phillips 66 Partners (NYSE:PSXP).

A rising stream of cash flow

Textainer Group Holdings has two fundamental problems that affected the company's ability to deliver a sustainable dividend to investors. First, it has a substantial amount of debt, which totaled $3 billion at the end of last quarter against just $4.3 billion of assets. The company's other problem was that there is too much potential volatility within its cash flow, given that the company has only 83% its fleet signed to long-term leases -- with 8.5% of its leases expiring this year -- as well as the fact that it relies on container sales for a portion of its income. However, revenue from both sources sank this year because of deteriorating market conditions, which put undue pressure on its balance sheet.

Contrast this with hydropower operator Brookfield Renewable Partners, which has an investment-grade credit rating because of its lower leverage levels. In addition, the company has a much stronger contract profile, generating 90% of its cash flow from long-term, fee-based contracts that not only have an average maturity of 16 years but also contain inflation-linked escalation clauses. As a result of these factors, Brookfield Renewable Partners should have no problem maintaining its generous 6% yield. In fact, thanks to proprietary growth projects in the pipeline, Brookfield expects to grow the payout by 5% to 9% annually over the long term.

Similar profile, different asset focus

Real estate investment trust W.P. Carey offers comparable cash flow stability to Brookfield Renewable. The company currently owns 910 commercial properties around the globe, leased to a variety of credit-worthy tenants. Further, these buildings have a more than a 99% occupancy rate and an average remaining lease length of nearly 10 years. These characteristics provide W.P. Carey with very stable cash flow, the bulk of which it returns to investors through a very generous 6.6% dividend.

Further, like Brookfield, W.P. Carey has a solid investment-grade credit rating supported with low leverage metrics. The company uses that balance sheet as well as retained cash flow to acquire additional properties. This conservative strategy has delivered steady dividend growth for the past 18 years and should continue to do so for years to come.

Dam Of Hydroelectric Power Plant

Image source: Getty Images.

Rapid growth rate

Midstream MLP Phillips 66 Partners shares many of those same characteristics. The pipeline company has an investment-grade credit rating, backed by one of the lowest debt-to-EBITDA levels in the sector. Further, it has a very stable cash flow profile, given that 100% of its cash flow comes from fee-based assets that are under long-term contracts.

That said, what sets Phillips 66 Partners apart is its robust distribution growth outlook, with the company intending to boost its payout by a 30% compound annual growth rate through 2018. Fueling that growth is a combination of organic growth projects currently under construction and future acquisitions from both third parties and its parent company, refining giant Phillips 66 (NYSE:PSX). This past year alone, Phillips 66 Partners invested $300 million on organic growth projects, put out $2.3 billion on dropdowns with Phillips 66, and completed three third-party transactions. That said, the bulk of its growth going forward will probably come from drop-down transactions with Phillips 66, which currently has a sizable inventory of midstream assets to sell to its MLP. Because of that backlog and its financial strength, Phillips 66 Partners shouldn't have any problems rapidly growing its already generous 4.5% payout.

Investor takeaway

Textainer Group Holding might once again pay a decent dividend. However, it will have trouble maintaining a generous future payout unless it strengthens the balance sheet and signs more of its fleet to long-term contracts. Because those improvements are unlikely in the near term, investors are better off forgetting about Textainer, and instead considering either Brookfield Renewable Partners, W.P. Carey, or Phillips 66 Partners.

Matt DiLallo owns shares of Brookfield Renewable Energy Partners, Phillips 66, and Textainer Group. The Motley Fool recommends Textainer Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.