I'm a big fan of generating passive income, which is why I love investing in dividend stocks. The main thing I use that money for right now is buying more income-paying stocks so I can continue growing my cash flow streams. Three stocks that currently sit at the top of my buy list to either add to my portfolio or current position are General Electric (GE 1.05%), Enterprise Products Partners (EPD +0.45%), and Medical Properties Trust (MPW +1.91%). Here's why these stocks are the first ones I'd buy the next time I have some available cash.
Too compelling to overlook
The stock of industrial giant GE has tumbled this year, falling more than 23%, even though the S&P 500 has risen 12%. Because of that decline, GE's dividend yield has grown to an appetizing 4%. It's a well-supported payout since it only consumes about $8 billion of cash, which is less than half the $16 billion to $20 billion it expects to pull in this year.
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One of the issues weighing on the stock is that market conditions have been a challenge for several of its business segments this year. GE's energy-related businesses have been hit particularly hard because oil prices haven't been as high as expected. Adding further weight is the fact that GE recently doubled down on oil and gas by combining its operations with those of oil service giant Baker Hughes to create Baker Hughes, a GE company (BHGE 4.71%). While the closing of the deal appeared to come at the wrong time given oil's weakness this year, crude has recently reversed course, which could drive stronger results for Baker Hughes and GE later this year. That's why I'm not so sure GE's 4% yield will last all that much longer, so it's probably the first one on this list that I'd buy.
The next wave of growth is about to hit
Energy infrastructure giant Enterprise Products Partners has also underperformed the market this year, falling nearly 4%, despite a notable turn in its financial results. Because of that decline and the continuation of the company's steady distribution increases (which recently hit 52 straight quarters), Enterprise now yields an appealing 6.3%. That payout is about as safe as they come in the energy sector, since Enterprise gets about 92% of its earnings from stable sources like fee-based contracts, and it covers its distribution with cash flow by 1.2 times.
Furthermore, the payout is about to get on even stronger footing since Enterprise is putting the finishing touches on $2.7 billion of expansion projects that should have entered service by the end of the third quarter, providing a near-term boost to cash flow. In addition to that, Enterprise has another roughly $6 billion of projects on pace to enter service in 2018 and 2019, which provides further visibility into future growth. Add in its solid investment-grade balance sheet with improving credit metrics, and Enterprise should continue to increase its distribution like clockwork each quarter through at least the end of the decade.
Prime real estate for a bargain-basement price
Medical Properties Trust is a real estate investment trust (REIT) that owns hospital properties leased to operators under long-term contracts. Those agreements provide the company with stable cash flow, which it uses to pay a lucrative dividend to shareholders that currently yields 7.3%.
That payment is also on solid ground since the company expects to generate around $1.30 per share in funds from operations this year -- and should increase it to about $1.44 per share next year, thanks to some recent acquisitions -- which is more than enough to the cover annual dividend outlay of $0.96 per share.
While that well-supported high yield alone is reason enough to buy this stock, it doesn't hurt that it currently sells for a dirt-cheap valuation of about 10 times this year's cash flow and about nine times next year's projection. That's well below the mid-teens multiple that many REITs trade at these days, which is an unwarranted discount, given its healthy financial position and growth prospects.
Good companies with excellent yields
What I like about this group is that each pays a meaningful, well-supported dividend. On top of that, all three have growth catalysts on the horizon that provide further support for the dividend, making it likely that all three will increase their payouts over the coming years. That's why I'd buy any one of them right now and anticipate investing in all three over the next month or so.
