Big dividends are certainly nice, but not all well-paying stocks make great investments. Great dividend stocks have high payouts, dividend safety, and room for long-term growth. With that in mind, here's why three of our contributors think Simon Property Group (SPG +0.17%), Eaton Corp. (ETN 4.85%), and Kinder Morgan (KMI +0.34%) could be great additions to your portfolio now.
The most adaptable retail companies will win
Matt Frankel (Simon Property Group): One stock that could be a great long-term bargain is 4.5%-yielding Simon Property Group, a real estate investment trust (REIT) specializing in malls and outlet shopping centers.
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The retail sector is facing significant headwinds right now, which is why many retail stocks (including Simon) are trading for relatively low valuations. You've probably noticed the wave of retail bankruptcies and store closures, and many once-great brands are struggling to survive.
However, Simon sees this as an opportunity to transform itself into the leader of the new retail environment.
Specifically, Simon aims to transition from traditional shopping malls into "mixed-use" properties with lots of entertainment options and dining variety, incorporating non-retail elements such as hotels, apartments, and offices. Many of Simon's malls are (or were) anchored by Sears stores. The REIT plans to take advantage by redeveloping the spaces formerly occupied by Sears into exciting destinations with new shops, restaurants, fitness centers, and more. Plus, Simon has a formal relationship with Marriott, and the hotel brand plans to open several hotels in Simon's shopping destinations.
As one of the largest REITs in the world and boasting an excellent credit rating, Simon has the financial flexibility to invest aggressively as it sees fit in order to make its vision a reality. In a nutshell, Simon is a high-yielding stock that could win big in the changing U.S. retail landscape.
Watch your dividends grow with this stock
Neha Chamaria (Eaton Corp.): Eaton Corp.'s current dividend yield of 3.3% may not seem high at first blush, but it's one of the highest dividends you can find among large-cap industrial companies. More importantly, Eaton's dividends are reliable and rising steadily, making it a top high-yield stock to consider.
In July, Eaton reported 7% growth in organic sales and 21% rise in net income for its second quarter, encouraging management to upgrade its fiscal 2018 earnings guidance to $5.20-$5.40 per share. That positions the company for a solid 14% increase in EPS at the midpoint over 2017, which should also mean a good dividend raise for shareholders.
In fact, the "power management company," as Eaton calls itself, is targeting 11%-12% growth in EPS over the next three years. That's hugely encouraging for income investors, considering that the company has grown its dividends at a compound annual rate of 11% in the past decade and aims to grow dividends in line with earnings going forward. While its existing diversified businesses of electrical products and systems, aerospace, vehicle, and hydraulics should continue to add value to Eaton's top and bottom lines, management is betting big on its new eMobility division targeting electric vehicles, among other things.
A high yield with high-octane growth ahead
Matt DiLallo (Kinder Morgan): Natural gas pipeline giant Kinder Morgan has gone from a dividend disaster to a top dividend stock over the past few years. Due to deteriorating conditions in the oil market, Kinder Morgan slashed its dividend 75% in late 2015 to give it some more financial breathing room as it worked to shore up its balance sheet.
The company would go on to sign a string of strategic deals over the past couple of years to bolster its financial position. As a result of those transactions, Kinder Morgan entered 2018 on a much firmer financial footing. That enabled the company to boost its dividend by 60%, which has pushed its current yield to about 4.5%. Even with that increase, it's currently generating enough cash flow to cover its payout and all growth-focused capital spending with roughly $500 million to spare. That's given it some extra cash to buy back its dirt-cheap stock.
Kinder Morgan currently anticipates that it can increase its dividend another 25% in 2019 and by that same rate in 2020. Fueling the company's fast-paced growth will be the additional cash flows of its current slate of expansion projects and an increase putting its dividend payout ratio closer to the 50% mark, which is still below the comfort level of most pipeline stocks. That combination of high-octane growth from a rock-solid high-yielding stock makes Kinder Morgan a top choice for income-seeking investors.
