After steadily climbing for the past several months, stocks got tripped up and tumbled over the last few days. Seemingly indiscriminate selling has taken virtually everything down. While sell-offs like this can be tough to stomach, they often present opportunities.
One that's beginning to emerge is the ability to scoop up some top dividend stocks at a lower price and an even more lucrative yield. Here are five top options to consider buying amid the downdraft.
Your pipeline to dividend growth
Shares of natural gas pipeline behemoth Kinder Morgan (NYSE:KMI) are down more than 10% in the past week. Nothing fundamental has changed. The company still expects to generate $4.57 billion, or $2.05 per share, in free cash flow this year, with 96% of that amount locked in by contracts. Kinder Morgan plans on paying out $1.8 billion of that cash in dividends, about 60% more than last year, and using the rest to finance high-return expansions projects and buy back more of its cheap shares. With the stock dropping double digits in the past week, investors can now lock in a 4.8%-yielding dividend this year, which should rise to 7.4% by 2020 given the dividend growth Kinder Morgan expects.
Just sit back and collect (more) income
Enbridge Energy Partners (NYSE:EEP) has tumbled more than 8% over the past week, making the already ridiculously cheap company even cheaper. That sell-off comes even though the oil pipeline company still expects to generate $775 million to $825 million in free cash this year, all backed by long-term, fee-based contracts. That's enough money to cover its now 10.2%-yielding payout by more than 1.2 times. Meanwhile, Enbridge Energy Partners plans to use the excess cash to pay down debt and help finance several acquisitions that it has the option to acquire over the next few years. Those deals position the company to grow its already rock-solid income stream by 3% annually through 2020, providing even more support for its lucrative payout.
A bright future
The stock price of wind and solar power generating company TerraForm Power (NASDAQ:TERP) has fallen nearly 7% this week even though long-term contracts have locked in 95% of its cash flow. The company expects to send about 80% to 85% of the cash generated this year back to investors, which works out to about a 6.6% yield in light of its recent sell-off. Meanwhile, TerraForm Power has clear line of sight to increase that payout by 5% to 8% annually over the next few years through a combination of internal cost-cutting efforts and high-return expansion projects.
The turn is still on schedule
Pipeline and processing company Crestwood Equity Partners (NYSE:CEQP) has fallen 6.7% over the past week, pushing its yield back above 9%. It's a very secure payout since fee-based contracts supply about 85% of Crestwood's cash flow, and it can cover its current distribution rate with cash by about 1.3 times. Meanwhile, thanks to recently completed growth projects, Crestwood's cash flow is on pace to begin rising again this year, and the company has clear visibility that it should continue increasing through 2021. Because of that, Crestwood could richly reward patient investors over the long term.
A steadily growing income stream
Hydropower generator Brookfield Renewable Partners (NYSE:BEP) dropped more than 5% in the past few days even though 94% of its cash flow comes from long-term contracts. Because of that, the company's now 5.9%-yielding payout is on solid ground, especially since it only distributes about 70% of its stable cash flow to investors. Meanwhile, Brookfield Renewable reinvests what it retains into building additional renewable energy facilities that will add more cash flow streams to its portfolio in the coming years. Those projects help support the company's belief that it can increase its payout at a 5% to 9% annual rate over the long term.
These dividend machines only got cheaper
While the values of these companies dropped this week, nothing fundamental about their businesses changed since all of them generate very stable cash flow backed by long-term contracts. Because of that, they've only become more attractive since investors can lock in a higher yield thanks to the recent sell-off. While there's no guarantee that they won't get even cheaper if the market keeps falling, the lucrative income streams these companies will throw off in the coming years should more than make up for it over the long term.
Matthew DiLallo owns shares of Brookfield Renewable Energy Partners, Crestwood Equity Partners LP, Enbridge Energy Partners, Kinder Morgan, and TerraForm Power and has the following options: short March 2018 $17 puts on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.