After steadily rising for quite some time, the stock market got tripped up on a variety of worries early this year and tumbled down. Among the hardest hit in this sell-off have been high-yielding energy companies. This mainly is due to concerns about the impact of higher interest rates on their operations, as well as investor demand.
This decline, however, has pushed the yields of several top-notch energy income stocks above 6%, making them compelling options to consider buying. The following six stand out:
|
Pipeline Stock |
Current Dividend Yield |
Targeted Payout Ratio |
Dividend Growth Forecast |
|---|---|---|---|
|
Magellan Midstream Partners (MMP +0.00%) |
6.3% |
~80% |
8% in 2018 and 5% to 8% in 2019 and 2020 |
|
Brookfield Renewable Partners (BEP 0.67%) |
6.5% |
~70% |
5% to 9% annually |
|
Enterprise Products Partners (EPD +0.69%) |
6.9% |
~80% |
~1% in 2018 before reaccelerating in 2019 |
|
Williams Partners (NYSE: WPZ) |
7% |
~85% |
5% to 7% annually |
|
TerraForm Power (TERP +0.00%) |
7.1% |
80% to 85% |
5% to 8% annually |
|
MPLX (MPLX +0.76%) |
7.4% |
~80% |
10% in 2018 |
Data source: Magellan Midstream Partners, Brookfield Renewable Partners, Enterprise Products Partners, Williams Partners, TerraForm Power, and MPLX.
Image source: Getty Images.
High-quality income on sale
Oil and refined products pipeline company Magellan Midstream Partners has tumbled nearly 20% from its peak earlier in the year, pushing its yield up above 6%, which is the highest it's been in years. It's a compelling entry point for income-seeking investors, given the company's top-tier financial position among master limited partnerships (MLPs). That financial strength, when combined with the expansion projects Magellan has underway, should continue fueling steady distribution growth over the next few years.
A squeaky-clean income stream
Hydroelectric and wind-energy producer Brookfield Renewable Partners has also plunged, falling about 12.5% since the start of 2018. That slide came even though the company reported exceptional results for 2017, giving it the power to boost its payout another 5%. Brookfield Renewable should continue generating a growing income stream in the coming years, given the escalators embedded in its long-term contracts, the expansion projects it has underway, and its knack for making value-creating acquisitions.
Image source: Getty Images.
A bargain price for such a safe income stock
Enterprise Products Partners has been quite volatile this year, initially popping more than 7% in January before giving back those gains and then some in the following few months. Overall, units of the natural gas liquids-focused MLP are down 17.5% from the peak, making it a tempting bargain for income seekers.
While Enterprise Products Partners doesn't offer the near-term income growth of some of the others on this list, that's by design. The company slowed its pace last year to further strengthen its financial situation, which already rivals Magellan as one of the best in the sector. Enterprise should hit its new target next year, which would give it the fuel to reaccelerate its growth rate or repurchase some of its beaten-down units.
Restarted its growth engine
Gas pipeline MLP Williams Partners has gotten off to a rough start in 2018, slumping 22.5% from its peak. That decline comes even though the company restarted its growth engine at the end of 2017, positioning it to begin increasing its high-yield distribution again this year. That visible growth, when combined with the company's improving balance sheet, makes Williams a compelling income stock to consider these days.
Image source: Getty Images.
A bright future
Wind and solar power company TerraForm Power has bounced around quite a bit this year but has slipped about 6% overall. That dip comes even though the company reinstated a high-yield dividend last month. In fact, it plans on paying out 6% more this year than its initial guidance after securing a needle-moving acquisition. That deal and the company's plans to cut costs position TerraForm Power to increase its payout at a mid-single-digit rate for the next few years, with ample upside ahead as the world continues its slow transition away from fossil fuels.
A big-time yield with growth to match
Pipeline and processing company MPLX has also endured a tough stretch, falling nearly 17% from its peak earlier this year. That decline, however, has pushed its yield up to 7.4%, which tops this group.
What makes MPLX all the more compelling for investors is that the MLP expects to increase its payout 10% this year. Further, it backs that view with a strong coverage ratio and a top-notch balance sheet. Meanwhile, with $2.2 billion of expansion projects underway and plans to be a consolidator in the sector, MPLX's income stream should continue rising in the coming years.
Several solid options for income seekers
A sell-off in the stock market has hit these income-paying stocks hard, pushing their yields up well above 6%. However, that has created a great buying opportunity for income investors since they can scoop up several excellent options with solid financials and compelling growth prospects for lower prices.
