If you're looking for stocks that pay you well to own them, then ExxonMobil Corporation (XOM 0.02%), Enterprise Products Partners LP (EPD 0.48%), and Duke Energy Corp (DUK 0.77%) should all be on your short list. Not only do they offer yields that are twice what you'd get from an S&P 500 index fund, but they have each increased those payments annually for at least a decade. Here's a quick overview of each one.
1. Major energy player
Exxon has the lowest yield of this trio at roughly 3.8%, just about twice what you'd get from SPDR S&P 500 ETF Trust. That said, this integrated oil and natural gas giant has the longest history of annual dividend increases at an astounding 35 years and counting. That's impressive, particularly since Exxon operates in a commodity industry known for volatile and swift price changes.
Image source: Getty Images
Exxon is basically built to survive. For starters, the company is diversified across the energy market, owning drilling assets, refining assets, and a chemicals business. The drilling arm does well when oil prices are rising, while refining and chemicals tend to do well when energy prices are falling. In other words, there's an inherent balance in the business that helps to smooth out the ups and downs. For example, earnings in the drilling business fell 75% in 2015 as oil prices plunged, but earnings from downstream assets (refining and chemicals) more than doubled.
Then there's the company's balance sheet. Even after increasing its debt levels more than four-fold during the energy downturn, Exxon's long-term debt still made up just 15% of the capital structure at the start of 2017. And that debt increase is exactly what you wanted to see, as Exxon used its financial strength to manage through the downturn while still increasing its dividend every year. It's starting to pay down debt at this point.
2. Midstream regularity
Enterprise Products Partners has the highest yield of this grouping at 6.4%. This midstream oil and natural gas partnership has increased its distribution annually for 20 years, within which there's a 52 quarter streak of quarterly hikes. That's like getting a pay raise every three months... Nice!
There's a lot to like about Enterprise beyond the distribution. For example, it is one of the largest and most diversified midstream companies in the United States. Its business is largely backed by fee-based assets, which means that energy prices are less important for the partnership's top- and bottom-line than energy demand. And it's conservatively run.
Enterprise is a broadly diversified partnership. Image source: Enterprise Products Partners L.P.
The best example of all of this is really the company's results through the energy downturn. Enterprise's core distributable cash flow increased each year between 2014 and 2016. And despite the steep drop in oil prices, its distribution coverage never fell below 1.2 times over that span, providing a nice margin of safety for the steadily growing distribution. Moreover, it continued to invest in its business the entire time, including opportunistically buying three companies.
3. A different type of energy provider
Shifting gears a little bit, you might also want to look at giant U.S. utility Duke Energy. This company has a 4.2% yield and a 13-year history of annual dividend increases. The big story here, however, is that Duke has made some big changes to its portfolio that have pushed its growth rate higher.
Over the last few years, Duke has sold its foreign energy business and its fossil fuel merchant business, both of which were drags on results and faced uncertain futures. At the same time, it was building up its renewable energy merchant business, and bought a natural gas utility with a growing regulated distribution business and fee-based midstream assets. It was a lot of change, but the end result is pretty nice.
Duke's changing business. Image source: Duke Energy
To give you some numbers, between 2009 and 2014 Duke's dividend grew at an annualized rate of just 2% a year. After the changes started to take shape, that rate increased to 4% between 2014 and 2016. The company expects the dividend and earnings to grow at around 5% a year over the next few years. Before you say 5% dividend growth isn't very exciting, note that 5% bests the historical rate of inflation growth by two percentage points.
Time to dig in
Exxon, Enterprise, and Duke all provide customers with energy in some fashion, which is the driving force of our world. That alone isn't a good reason to buy any of them, but add in the hefty yields and long histories of annual increases and you might decide one or all of this trio has a place in your portfolio. The best part: not only do they all pay you well to own them, but they are fairly conservative, sleep-well-at-night companies, too.
