The average stock in the S&P 500 yields less than 2% at the moment. Dividend investors, however, can do much better than that if they know where to look. One place where they can score yields more than triple that rate is in the energy midstream segment.
Three such companies that stand out are Enbridge (ENB -0.27%), Enterprise Products Partners (EPD 0.18%), and Crestwood Equity Partners (CEQP 0.90%). Here's why I'd have no problem buying any one of these ultra-high-yield dividend stocks right now.
A well-fueled dividend growth plan
Canadian pipeline giant Enbridge currently offers investors an attractive 6.3%-yielding dividend. While higher-yielding payouts often carry higher levels of risk, that's not the case with Enbridge. That's because the company prides itself on having a low-risk business model. One key aspect of its strategy is focusing on operating assets that generate predictable cash flow. Long-term contracts and other stable sources will supply 98% of the company's earnings this year as a result. Enbridge compliments that with a healthy investment-grade balance sheet and a comfortable dividend payout ratio of around 65%.
Thanks to its strong financial profile, the company has the flexibility to invest in projects that expand its operations. It's currently on track to finish $9 billion Canadian ($6.8 billion) worth of expansions this year, which should give it the fuel to increase its dividend by another 10% next year. Meanwhile, the company believes it can finance between CA$5 billion and CA$6 billion ($3.8 billion-$4.5 billion) of expansion projects per year after 2020. That's a high enough investment rate to grow its cash flow by around 5% to 7% per year. Enbridge's big-time dividend therefore appears poised to head even higher in the coming years, and that's why I'd have no problem buying shares right now.
61 and counting
Enterprise Products Partners' payout checks in at a 6.4% yield. Like Enbridge, the master limited partnership's payout is on rock-solid ground. For starters, long-term fee-based contracts currently supply more than 85% of the company's cash flow. Meanwhile, it uses only about 60% of that money to pay its well-above-average distribution. Add that to the company's top-tier balance sheet, and it has plenty of financial flexibility to invest in growth projects while maintaining its payout.
Enterprise currently has $6 billion of expansions under construction and another $5 billion to $10 billion in development. Those projects should give it plenty of fuel to grow its cash flow in the coming years, and that means the MLP should have no problem continuing to increase its payout, which it has done for 61 straight quarters. That steadily growing income stream is why I think Enterprise Products Partners is one of the top dividend stocks to buy right now.
High-octane growth ahead
Crestwood Equity Partners has the highest yield of this trio at 6.8%. Like the others on this list, the MLP's distribution is on a firm foundation. That's because it gets about 85% of its earnings from predictable sources and only pays out around 60% of that money to support its big-time yield. Add in a healthy balance sheet, and Crestwood also has the financial flexibility to expand its operations.
The company is currently nearing the end of a major three-year expansion program. That sets it up to grow cash flow by a peer-leading rate of more than 20% per year through 2020. As a result of that high-octane growth, Crestwood's financial profile will strengthen considerably by the end of next year. That should allow the company to start increasing its already well-above-average payout. The MLP's combination of income and upside makes it an excellent buy these days.
Top-notch income options
Investors seeking big-time dividend income should take a closer look at this midstream trio. All three companies offer ultra-high-yields of more than 6% that they back with healthy financial profiles, meaning they have the funds to continue expanding. That should enable all three to increase their already above-average payouts in the coming years, making them excellent buys right now.