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3 Sizzling Income Stocks That Are Still Excellent Buys Right Now

By Matthew DiLallo – Updated Sep 16, 2019 at 3:49PM

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This trio of high-yield stocks is up more than 30% this year.

Despite lots of volatility, the S&P 500 has been red hot this year. Through mid-September, it's up nearly 20%. So it's no surprise to see that most stocks have enjoyed good years.

Some of the hottest ones have been those that pay high-yielding dividends -- income-focused investors are flocking to these entities as a result of the Federal Reserve lowering interest rates. Among the biggest movers are global infrastructure giant Brookfield Infrastructure (BIP 0.92%), midstream master limited partnership Crestwood Equity Partners (CEQP 2.87%), and wind and solar power generator TerraForm Power (TERP). However, despite their sizzling gains, these stocks all still look like excellent buys now for the long term.

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This strategy is paying dividends

Units of Brookfield Infrastructure are up an impressive 38% already this year. Add in the company's 4.2%-yielding distribution, and investors have earned a 43% total return.

Powering the company's growth has been the success of its capital recycling program and recently completed organic expansion projects. Brookfield sold its stake in a Chilean electricity transmission business last year and used the funds to make six acquisitions. Those moves are paying dividends as they helped boost the company's cash flow per share by 6% during the second quarter. Meanwhile, it complimented that growth by completing expansion projects, which added another 10% boost to the bottom line during the quarter, well above its 6% to 9% target range.

The company recently began the second phase of its capital recycling program by selling its stake in a Chilean toll road business and European ports operations. That gave it the funds to make several more acquisitions, which should fuel faster growth in the coming quarters. So Brookfield should have no problem delivering on its plan to increase its high-yield payout at a 5% to 9% annual rate. As a result, it remains well positioned to continue generating strong total returns for its investors over the next few years.

About to stomp on the accelerator

Units of Crestwood Equity have risen about 33% so far this year. Add in the midstream company's 6.5%-yielding payout, and the total return for investors is up to more than 40%.

Fueling the company's big gains have been a combination of organic expansion projects and acquisitions. Crestwood bought out a joint venture (JV) partner during the second quarter, giving it full control over one of its main growth engines. That deal, as well as the recent completion of some expansion projects, helped drive its second-quarter cash flow up 19% compared to the prior-year period.

Crestwood has plenty more growth coming down the pipeline. The company just finished a new natural gas processing plant last month and expected to complete another one later this year. In addition to that, the company also recently begin receiving 50% of the earnings from another JV, up from 40%. As a result, Crestwood is on track to grow its cash flow by a sector-leading 20%+ compound annual rate through next year. That sets the MLP up to start increasing its distribution again, which puts it in a solid position to continue producing market-beating total returns.

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Image source: Getty Images.

Powering up its growth plan

TerraForm Power's stock has been the hottest of this trio, rocketing 52% this year. Add in the renewable energy company's 4.8%-yielding dividend, and the total return is up to 59%.

Powering TerraForm's strong showing this year has been the success of its turnaround plan. The company's earnings and cash flow surged during the second quarter thanks to the actions it has taken to improve the profitability of its legacy assets. It also got a boost from a needle-moving acquisition.

This trend should continue in the coming quarters. That's because the company is just starting to receive the full benefit of its moves to boost the profitability of its legacy assets. Meanwhile, it recently made another acquisition, which will provide a further boost to its earnings over the next few years. Because of these factors, TerraForm Power should be able to increase its above-average payout by a 5% to 8% annual pace through at least 2022. Add that visible income growth to the company's focus on the enormous renewable energy market opportunity, and it has the potential to be an even bigger winner over the long haul.

Still great options for income-focused investors

After surging this year, the yields on these dividend-paying stocks have fallen from where they were to start 2019. However, they're still well above average. Furthermore, all three companies have compelling growth prospects, which will enable them to increase their dividends in the coming years. That means they remain excellent options for income investors to consider buying for the long haul.


Matthew DiLallo owns shares of Brookfield Infrastructure Partners, Crestwood Equity Partners LP, and TerraForm Power. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
$36.03 (0.92%) $0.33
Crestwood Equity Partners LP Stock Quote
Crestwood Equity Partners LP
$28.29 (2.87%) $0.79
TerraForm Power Stock Quote
TerraForm Power

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