Who doesn't like to get paid? When it comes to investing that can mean a number of things. For me, that means a nice dividend yield and a long history of paying that dividend each and every quarter. Right now integrated oil major Royal Dutch Shell plc (RDS.B), midstream giant Enterprise Products Partners L.P. (EPD 0.18%), and electric and gas utility Duke Energy Corp (DUK 1.51%) are companies that reliably pay you.
1. Working back
Royal Dutch Shell yields 6.8%. The oil major has a long history of rewarding investors with dividends, but the size of the dividend check has been stuck in neutral since 2014 when oil began a deep decline from which it has yet to fully recover. The question on many investors' minds is how safe is Royal Dutch Shell's dividend?
Image source: Getty Images
The big problem for Shell right now is debt. The oil major made an opportunistic, but expensive, acquisition during the energy downturn, increasing debt by roughly 50% in 2016 to get the deal done. But the company is well aware of the problem, and reducing debt is cash flow priority number one right now -- it's using asset sales to trim the debt by a targeted $30 billion. More than $20 billion worth of deals has been inked or completed at this point.
The big attraction here is a mixture of the high yield and the progress management is making on its goals. So far it's doing what it said it would. That suggests that you'll keep getting paid that big yield until the market catches onto the fact that Shell's balance sheet is materially improving -- just like the company promised.
2. Steady as she goes
Next up is Enterprise Products Partners and its 6.1% distribution yield. This limited partnership is one of the largest midstream energy players in the United States. It has a 20 year history of annual distribution increases and, within that, a 52 quarter streak of quarterly hikes. There are two notable things to keep in mind here.
First, unlike an oil company like Shell, Enterprise's business is largely fee-based. That means the prices of oil and gas aren't all that important to the partnership or its distribution paying ability. To put a number on that, between 2014 and 2016, a tough period for oil, distribution coverage never fell below 1.2 times (a healthy margin of safety in the partnership space) despite regular quarterly increases. Coverage was 1.3 times in the first quarter of 2017.
EPD Dividend Per Share (Quarterly) data by YCharts
Second, as a partnership, the main driver of growth for Enterprise is expansion. That can come via acquisitions or construction. Enterprise currently has roughly $8.6 billion of construction projects in the works through 2019, so expect slow and steady distribution growth to continue. Owning Enterprise will probably never be exciting, but for more conservative types a steady 5% (or so) distribution growth rate is pretty enticing.
3. Shifting into a higher gear
Keeping with the energy theme, you should also take a look at U.S. electric and natural gas giant Duke Energy. The company currently offers investors a nearly 4.2% yield, modest compared to the other two companies here but still about twice the roughly 2% yield offered by the S&P. Duke has paid a dividend for 96 years running, with annual increases in each of the last 12 years.
The utility operates in the Southeast and Midwest. It has around 7.4 million electric customers and 1.5 million natural gas customers. More important than that, however, is the change the company has undertaken in recent years, shifting more toward regulated businesses and those that operate under long-term contracts. For example, it sold its foreign business and merchant coal operations. Meanwhile, it merged with Progress Energy, bought Piedmont Natural Gas (last year), and has been building a renewable energy merchant power business.
Duke's changing business. Image source: Duke Energy
The change for dividend investors has been notable. Between 2009 and 2014 dividends were growing at a very modest 2% a year. Between 2014 and 2017 the rate increased to 4%. And now that all the deal making is complete, the company is projecting dividend (and earnings) growth of between 4% and 6%. Clearly, investors have something to be happy about now that dividend growth is expected to outdistance the historical growth rate of inflation. The company will have to keep executing well on all of its growth opportunities to hit its numbers, but so far there's no reason to doubt that it can.
Worth the work
The stories behind Shell, Enterprise, and Duke are all a bit different. But each one of these companies pays you well and is worth a deep dive. Of the trio, Enterprise has the most impressive distribution history backed by slow and steady wins the race business model, but don't count out the improving balance sheet at Shell or the business transformation underpinning Duke's increasing dividend.
