So you love dividends. I can't blame you. The idea of being paid, quarter-in and quarter-out, just for owning a stock, even if the share price doesn't outperform, sounds like a pretty good deal. And if the yield is high and the payout secure, it starts sounding even better.
Well, these three stocks combine a high yield with a reliable payout. If you haven't already, you might want to consider buying BP (BP 0.98%), Holly Energy Partners (HEP), and Buckeye Partners (BPL).
A top dividend stock can put a smile on your face every quarter. Image source: Getty Images.
A best-in-class yield
Although dividend lovers will find things to like about most of the integrated oil majors, BP currently has the highest yield of any of them, at 5.9% -- edging out the also-attractive Royal Dutch Shell by less than a 10th of a percentage point. That yield has dropped somewhat over the past year, but only because the company's share price has risen by 17.8%, thanks in large part to improving oil prices. And with Brent Crude prices having stayed above $60 per barrel all year -- so far -- BP should continue to report stellar results.
BP turned in a fantastic 2017, with higher production and revenue. In Q4 2017, production was up 18% year over year, thanks to seven major capital projects coming on line during the year. Better yet, 2017's reserve replacement rate -- the rate at which the company discovers new oil and gas to replace the oil and gas it extracts via existing wells -- was 143%, meaning BP is discovering much more oil and gas than it's currently pumping. That bodes well for the company's future.
BP has also announced plans to restart its share-buyback program, making it the first of the oil majors to do so. All in all, BP is a solid pick for dividend investors and may even give them a bit of share-price appreciation on the side.
All in the structure
Any dividend lover needs to familiarize themselves with master limited partnerships (MLPs). MLPs are required to pay out all their earnings as distributions to their partners in exchange for paying no corporate taxes, so their yields tend to be sky-high. Take, for example, Holly Energy Partners, which currently yields about 9.2%!
Before you get too sold on the idea of putting MLPs into your portfolio, though, I should warn you that because of their unique tax structure, owning MLP units could make filing your own taxes more difficult, so they're certainly not for everyone.
Like many MLPs, Holly is in the business of energy infrastructure. The partnership owns and operates a huge network of pipelines and storage facilities, and a few refining units as well. Business was booming in 2017, with revenue up 13% year over year. To ensure that the company could continue that outperformance in 2018, management recently reorganized its ownership structure to decrease its costs of capital.
That reorganization could result in slower-than-usual growth for Holly, which will now need to pursue growth through acquisitions. But rising oil prices and increasing valuations have reduced the number of attractive potential acquisition targets. In spite of that, Holly recently announced its 53rd consecutive quarterly distribution increase -- and its management is predicting an annualized distribution growth rate of 4% for 2018. That should keep the good times rolling for dividend lovers who choose to buy in.
A double-digit yield
If yields are what you're after and you don't mind the tax-filing complications that come with MLP ownership, you might think it's worth the extra effort to get your hands on a 13.5% yield, which is what Buckeye Partners is currently offering.
Buckeye is another energy infrastructure MLP, with the bulk of its pipeline network located in the Midwest. The partnership also owns terminals around the country and in the Caribbean. Like Holly, it has a long history -- 22 consecutive years -- of annual distribution increases. But its distribution coverage isn't what investors might hope for. In fact, for 2017, its coverage ratio was 1, meaning it had just enough cash to cover its distributions with nothing left over.
However, the company's management has been adamant that Buckeye would only cut its dividend as a last resort, and points to increasing volumes and the partnership's new 50% equity interest in the globally diversified VTTI as potential growth drivers for 2018. It's also worth noting that even if the payout was cut by, say, 25%, the yield would still be higher than most yields around. Of course, the risk is that the hoped-for 2018 growth doesn't come to fruition, forcing a significant payout cut, which would probably also send the unit price lower, and that would be an outright disaster.
It's more of a gamble than the other two, but if you think you can tolerate some risk in your dividend portfolio, Buckeye Partners may be the company for you.
The gift that keeps on giving
A great dividend will continue to reward investors for years, if not an entire lifetime, and BP, Holly Energy Partners, and Buckeye Partners offer mouth-watering yields and solid track records of distribution increases that should make any dividend lover happy.
