When you buy individual stocks, you are making a commitment to keep tabs on those businesses. There are very few companies that you can simply forget about. However, that doesn't mean you have to babysit every investment. There are plenty of great companies where a once-a-quarter checkup is more than enough to ensure that everything is still OK. Dominion Energy, Inc. (D 0.32%) and Magellan Midstream Partners, L.P. (MMP +0.00%) fit the bill, and both have a long history of rewarding investors with high yields and notable distribution growth.
Don't let the headlines fool you
The big news surrounding Dominion Energy is that it is attempting to buy troubled competitor SCANA (SCG +0.00%). SCANA's problems stem back to an ill-fated plan to build a nuclear power plant that has since been abandoned. The big hit came when Westinghouse, the company doing the construction, declared bankruptcy. The proposed acquisition sounds like something you'd want to know about, and it is, but it doesn't really change the long-term picture for Dominion.
Image source: Getty Images.
For starters, there's a scale difference here. Dominion's market cap is nearly $49 billion, making it more than seven times the size of SCANA, which sports a roughly $6.5 billion market cap. This is really a bolt-on deal to expand Dominion's reach further into high-population-growth Southern markets, rather than an event that will completely reshape the company. It's an opportunistic move, as SCANA's nuclear foibles have put it in a position where it could use some financial support. It appears to be the type of deal investors would like to see a management team take on, even though Dominion is going to have to clean up SCANA's troubled nuclear bet.
The rest of Dominion's businesses, however, remain very boring (in a good way). Its electric and gas utilities are regulated assets where slow and steady growth is backed by long-term capital investment plans. Its midstream assets include pipelines and a new natural gas export hub. These are largely backed by long-term, fee-based contracts. And there's still construction going on in this segment, as well.
Dominion is looking to further its reach into the South with the SCANA deal. Image source: Dominion Energy.
It's that core business that has supported Dominion's 15 years' worth of consecutive annual dividend increases. The annualized dividend growth rate over the past decade was around 8%. However, management expects its current investment plans to support 10% annual dividend growth through 2020. The proposed SCANA deal shouldn't change that number, though it is expected to increase Dominion's earnings growth from 6% to 8% over the next three years.
Even though the SCANA deal is headline-grabbing, Dominion is really just as boring as it ever was -- a statement that's supported by its beta, a measure of relative volatility, of 0.3. That's a very modest number. Equally enticing, Dominion currently yields around 4%, or roughly twice the yield offered by an S&P 500 index fund. So you can collect a high yield with a fast-growing dividend backed by a boring energy company. The SCANA deal doesn't change the core story here. It only makes it better.
Conservative before it was cool
When it comes to the midstream oil and gas space, Enterprise Products Partners L.P. (EPD 1.00%) is the bellwether to watch. The big move for this partnership recently was to slow down its distribution growth into the low single digits so it can increasingly self-fund its growth plans. Magellan has been doing this for years.
To put a number on that, Enterprise's unit count increased around 20% over the five years through 2016 as the partnership sold units to support growth spending. Meanwhile, Magellan's unit count was essentially unchanged over the same span even though it, too, continued spending on growth. The end result is notable, with Enterprise growing its distribution at an around 6% rate over the trailing five years, versus 14% growth at Magellan. Magellan also benefits from one of the least leveraged capital structures in the midstream sector, with debt to EBITDA at the low end of the industry. This is a conservatively run partnership, a fact highlighted by a string of quarterly distribution increases that dates back to its initial public offering in 2001.
Magellan expects to grow its distribution at around 8% a year in 2018 and 2019 -- more than twice as fast as Enterprise. That's backed by $1.1 billion of spending plans, with another $500 million in the wings that could be added to the total. Most of these projects have customers lined up or are expansions at existing assets where demand justifies the spending.
Magellan's distribution growth has been backed successful capital projects over time. Image source: Magellan Midstream Partners, L.P.
Magellan offers investors a 4.8% yield and robust distribution growth prospects. All backed by a boring, fee-based business that's been run in a way that industry giant Enterprise is looking to emulate. If you don't want to constantly be checking on your portfolio, Magellan should be on your short list.
Don't forget anything
Both Dominion Energy and Magellan are high-yield opportunities with notable prospects for disbursement growth. I don't think you can simply buy them and forget about them -- few investments deserve that kind of trust. But a quarterly update is probably all that you'll need, noting that even Dominion's "exciting" SCANA acquisition plans will likely take a long time to finally bear fruit. If you are looking to build a portfolio that doesn't need constant monitoring, do a deep dive on Dominion and Magellan today.
