If you're collecting Social Security, then you've gotten to the stage in life where capital growth has been superseded by a desire for capital preservation and income. The goal is to supplement your Social Security income so you have more spending money while you enjoy retirement -- and high-yielding Magellan Midstream Partners, L.P. (MMP) and Duke Energy Corp (DUK 0.77%) are two options you should be considering. Here's why.
Growing distributions
Magellan is a large midstream partnership with a roughly 5.3% yield. It owns vital and hard to replace infrastructure, like pipelines, that help transport and process oil and natural gas. The vast majority of its business is fee based, representing around 85% of its operating margin. That makes its business very stable over time, since demand for energy is more important than the price. That last part helps explain its impressive streak of 17 consecutive years' worth of distribution hikes.
If you're planning for retirement, look for a mix of safety and income. Image source: Getty Images
Magellan is also very conservatively managed. Its roughly 3.5 debt to EBITDA ratio is among the lowest in the midstream space, well below industry bellwethers Enterprise Products Partners' (EPD 0.48%) 4.5 and Kinder Morgan, Inc.'s (KMI 0.27%) 6.5. So Magellan offers a high yielding and conservative business built on fee-based assets -- but what about the future?
Partnerships like Magellan grow by building and buying assets. And on that score, Magellan has a great track record, having successfully deployed $5 billion on acquisitions and organic growth over the past decade in support of its distribution, which grew at a compound annual rate of more than 10% over the span. The future from here includes spending of around $600 million this year and another $1.15 billion between 2018 and 2019.
An overview of Magellan's spending history and plans. Image source: Magellan Midstream Partners, L.P.
Many of the projects in the pipeline already have customers lined up or are expansions of existing assets where management sees sufficient demand to warrant more investment. And that capital spending figure could go up another $500 million as Magellan evaluates new projects. These numbers don't include the potential for acquisitions. The end goal is 8% distribution growth with solid 1.2 times coverage over the next few years. If you are looking to supplement your Social Security income, Magellan is a great option to consider as it continues to build for the future.
Adding a little boring
Giant U.S. electric and natural gas utility Duke Energy is a slightly different story. The company provides a sizable 4% dividend yield backed by an over-90-year history of paying dividends. It's increased the payout in each of the past 13 years. The difference is that Duke won't excite you when it comes to dividend growth, with the projection there for increases of around 4% to 5% a year.
But that bests the historical rate of inflation growth, which is around 3%. This means your buying power will keep going up. And Duke has an amazingly low beta, which is a measure of relative volatility: its beta of just 0.26 means that its stock price isn't expected to move around nearly as much as the broader market -- roughly a quarter as much, to be more exact. This is a cornerstone-type investment that provides both income and safety.
Duke's spending plans in a little more detail. Image source: Duke Energy Corp
Like Magellan, however, Duke has plenty of growth opportunities to back future dividend increases. It plans to spend $37 billion on capital projects between 2017 and 2021. Roughly 80% of that is going to go toward its regulated utility assets, where the company gets a monopoly in exchange for allowing regulators to set the rates it can charge customers. Generally speaking, the more its spends here, the more it's allowed to raise rates. The remaining 20% will go toward expanding its regulated gas utility, infrastructure, and renewable power merchant businesses. Clearly, Duke has multiple levers to pull to support the slow and steady dividend growth that will help you sleep well at night.
Hitting both goals
So if you are looking for a mixture of capital preservation and income, conservatively run Magellan and boring old Duke should both be on your watch list today. Each has notable plans in the works to keep its business growing so they can continue to reward you with a growing income stream. At the same time, there's nothing about their operations to suggest you're putting your hard earned capital at material risk. That's the perfect way to supplement Social Security if you ask me.
