With interest rates falling this year, the yields of dividend stocks have declined as income-seeking investors have bid up shares of these companies in search of yield. The average high-yield dividend stock has gained nearly 18% this year, as measured by the Vanguard High Dividend Yield ETF, an exchange-traded fund holding more than 400 stocks that offer above-average payouts. Thus, dividend investors don't have quite as many appealing opportunities to score an outsize yield.
However, there is one sector that still offers investors big-time payouts: energy. The reason is that investor sentiment toward the industry remains very negative because of all the turbulence in oil and gas prices in recent years. That's causing valuations across the sector to fall even though many energy companies are doing quite well. That's left investors the chance to scoop up some great deals, as well as some high yields, this December.
Williams Companies: Current yield 6.7%
Natural gas pipeline giant Williams Companies' (NYSE:WMB) stock has been all over the map this year. It soared as much as 30% at one point before giving up nearly all those gains; it was recently up about 3% on the year. That meager return comes even though Williams' cash flow is up 16% year to date, giving it the fuel to increase its dividend 11.8% this year. That payout is on a very firm foundation, since Williams can cover it with cash flow by a comfortable 1.7 times. Furthermore, it has a solid balance sheet that has improved significantly this year. While Williams does foresee slower growth in 2020, it remains on track to increase its dividend by a 5% to 7% annual rate in the coming years.
Enterprise Products Partners: Current yield 6.7%
Large-scale master limited partnership Enterprise Products Partners (NYSE:EPD) has also underperformed its financial results. Overall, units of the MLP have risen about 7% this year. Though that's below its high from earlier in the year, and much less than the 14% year-to-date growth in its cash flow. Enterprise trades at a much more attractive valuation as a result. Meanwhile, it's currently producing enough cash to cover its high-yielding payout by 1.7 times. Add that to its top-tier balance sheet and sector-leading growth prospects, and Enterprise should be able to continue growing its high-yielding payout for several more years.
Magellan Midstream Partners: Current yield 7%
Magellan Midstream Partners (NYSE:MMP) is up only about 2% on the year. That meager return comes even though the company has vastly outperformed its expectations. Initially, it expected to generate $1.14 billion of cash this year. However, it's now on track to produce $1.26 billion, which would be 13.5% ahead of 2018's level. That's enough money to cover its high-yielding payout -- which it has increased 5% this year -- by a comfortable 1.35 times. Add that to it having one of the best balance sheets among MLPs, and Magellan's payout is on as firm a foundation as investors will find in the sector.
Plains All American Pipeline: Current yield 8.3%
Oil pipeline-focused MLP Plains All American (NASDAQ:PAA) is having a monster year financially. It has boosted its full-year forecast each quarter and is now on track to produce more than $2 billion in cash. That's up nearly 16% from last year and will cover its high-yielding payout -- which it increased 20% earlier this year -- by a comfortable 2.06 times. However, despite its great year, and the growth it sees ahead, units of the MLP have tumbled 13% on the year. Now it's an even more attractive opportunity for income-seeking investors.
Energy Transfer: Current yield 10.3%
Energy Transfer (NYSE:ET), like all the other pipeline stocks on this list, is having an excellent year financially. It has boosted its full-year forecast a couple of times and is now on track to grow its earnings by 16%. It will cover its monster 10.3%-yielding payout by a comfy 2.0 times. Even so, units of the MLP have slumped 10% on the year, making it one of the cheapest stocks in the energy midstream sector.
MPLX: Current yield 11.5%
MPLX (NYSE:MPLX) has lost more than 20% of its value this year, which is a real head-scratcher, since the MLP has grown its cash flow by an impressive 47% year to date because of the impact of organic expansion projects and the acquisition of a sibling MLP. That has given it the fuel to increase its high-yielding payout by another 6.3% year over year while covering it by a comfortable 1.54 times. With that in mind, and given some moves it's making to improve its financial position, MLPX believes not only that its payout is secure, but also that it can also keep growing it in the future.
Enticing income opportunities
Investor disdain for energy stocks has many of those stocks trading at quite attractive valuations this month, which has also helped boost their yields. Income-seeking investors can score some big-time payouts in the sector this December as a result, with several yielding more than 6%. Even better, most of these companies expect to boost their payouts next year, meaning their yields will be even higher for those who take advantage of the sector's current buying opportunity.