Dividend stocks can be a powerful tool to boost your investment returns, provided you pick stocks that don't just offer high yields, but also steady and growing payouts that can support those yields even as the market climbs.
This long bull market may have made it tougher for income investors to find such "safe" high-yield stocks, but it's not impossible. There are several stocks with yields above 3% worth considering in today's market that could fetch you solid returns in the long run. My top picks among them are Brookfield Renewable Partners (NYSE:BEP), Enterprise Products Partners (NYSE:EPD), and Welltower Inc. (NYSE:WELL).
Brookfield Renewable Partners: Dividend yield 5.6%
Brookfield Renewable Partners is a renewable-energy company, as you might've guessed from its name. But it isn't just your average player in the space. It's one of the world's largest publicly traded pure-play clean energy companies, with 820 generating facilities and a capacity of 16,000 megawatts across the globe.
What sets Brookfield apart is that hydroelectric power plants comprise 80% of its generating capacity, putting it among the leading companies in hydropower -- an arena where competition isn't as intense as in other clean energy spaces such as solar.
Brookfield's revenues and cash flows are also highly predictable as it sells 90% of generated power under long-term contracts. Thanks to this stability in cash flows, the company has been able to grow its dividends at a compound average rate of 6.2% since 2012.
Can it continue to reward shareholders as richly? Yes, based on management's stated goals to grow dividends by 5% to 9% annually and generate 12% to 15% annualized returns for shareholders in the long run. The best part: The company is focused on organic growth, with nearly 7,000 megawatts of capacity under development -- half of it wind energy, a high-potential, low-cost source that complements its hydropower business. Trading now at a price-to-cash flow of 11.8 times, there's little reason to believe Brookfield Renewable won't reward you richly in the long run.
Enterprise Products Partners: Dividend yield 6%
This midstream oil and gas company just delivered another set of solid quarterly numbers, with its volumes, operating income, and distributable cash flow hitting record highs as the company brought new projects online and ramped up capacity. Last month, Enterprise bumped up its dividend by 4%, marking its 54th consecutive quarter of payout increases. A low-single-digit percentage increase may not excite you, but Enterprise is intently focused on growth right now, which should eventually make way for greater dividends.
Enterprise made a tough call last year when it decided to taper the growth rate of its distribution (the term limited partnerships use instead of "dividends"). It was a smart move, and as my colleague, Matt DiLallo remarked at the time, one which "only further solidifies its position as a top option for risk-averse income seekers."
How so? Because Enterprise has a strong pipeline of projects, and by retaining cash, it can self-fund the bulk of its capital requirements without taking on debt or diluting its shareholders. That should help the company build a rock-solid balance sheet and a strong, sustainable distribution-coverage ratio in the long run.
Enterprise may not offer high distribution growth today, but its payouts are likely to grow nonetheless as management's prudent strategy unlocks greater value for shareholders. Meanwhile, you can enjoy the stock's hefty dividend yield, which currently stands at 6%.
Welltower: Dividend yield 5.85%
If there's one trend you can't afford to ignore, it's an aging population that's set to send healthcare spending skyward. Investing in fundamentally strong, dividend-paying healthcare stocks, therefore, would be a smart move for an income investor. Enter Welltower -- a real estate investment trust that has a hugely diversified portfolio and is a leader in the healthcare REIT marketplace.
Welltower's portfolio is leveraged to nearly every aspect of healthcare, including senior housing (70%), post-acute care (13%), and outpatient medical solutions (17%). The company's business model runs something like this: It buys healthcare properties, then leases them out to established healthcare providers to jointly operate and develop. As of the third quarter, Welltower held 1,334 healthcare properties.
A diverse portfolio in a defensive industry with greater reliance on private sources of revenue has helped Welltower expand its funds from operations almost sixfold since 2011, and to grow dividends consistently, without which the stock's total returns over the past decade wouldn't be half as good as they are right now.
If the U.S. Census Bureau's estimate that the 85-plus age group's population will double in 20 years is on target, dividend investors can expect solid returns from Welltower for years to come.