Does a high dividend yield translate to major negative trade-offs for investors? Sometimes it does, but not always. High-yield dividend stocks can be found that don't come with a lot of unwanted baggage.
Three dividend stocks with yields of 6% or more that look especially attractive are Enbridge (ENB -0.24%), Enterprise Products Partners (EPD 0.28%), and Omega Healthcare Investors (OHI -0.45%). Here's what makes these stocks great candidates for long-term investors to buy right now.
Canadian pipeline giant Enbridge offers a dividend that currently yields nearly 6.2%. Even better, the company claims a fantastic dividend track record, recently increasing its dividend payout for the 25th consecutive year. Over the last five years, Enbridge has boosted its dividend by a total of nearly 66%.
I think the company will keep this impressive streak going for a long time to come. Enbridge expects to grow its cash flow by 10% in 2020 with growth between 5% and 7% in subsequent years. That's enough to keep the dividends -- and the dividend hikes -- flowing.
Pipeline companies tend to have stable cash flows, and Enbridge is no exception. It receives 98% of its earnings from long-term, fee-based contracts. Enbridge also uses less than 65% of its cash flow to fund its dividend program. I don't look for the stock to deliver a 28% gain like it's done in 2019 every year, but Enbridge should continue to be a winner for income-oriented investors.
2. Enterprise Products Partners
Another pipeline stock that dividend investors should really like is Enterprise Products Partners. The company's dividend yield currently stands at nearly 6.3%. Enterprise isn't far away from becoming dividend royalty, announcing its 22nd consecutive year of dividend increases in November. Just three more years and the company will become a part of the elite group of stocks known as Dividend Aristocrats -- members of the S&P 500 that have increased their dividends for 25 years in a row.
In some ways, Enterprise Products Partners is even more attractive than Enbridge. For example, its debt-to-EBITDA ratio is 3.6, well below the level of Enbridge and other major peers. The company's relatively conservative approach to leverage makes its dividend even more secure if interest rates spike.
But Enterprise isn't so conservative that it doesn't capitalize on growth opportunities. The company now has $9.1 billion worth of projects under way or in its backlog, enough to enable it to increase cash flow at least through the next three years.
3. Omega Healthcare Investors
Not every attractive high-yield dividend stock is a pipeline operator. Omega Healthcare Investors ranks as the largest real estate investment trust (REIT) focused on skilled nursing facilities (SNFs). The company owns over 900 properties, with 83% of them either SNFs or transitional care facilities and the remainder senior housing properties.
Omega's dividend currently yields nearly 6.5%. The REIT has had 17 consecutive years of annual dividend increases. Its adjusted funds from operations (FFO) payout ratio is still roughly in line with levels throughout that period, which provides reason to be confident that the dividends will keep coming in the future.
The stock has outperformed the average for healthcare REITs over the last three years, five years, and 10 years. I look for even better performance over the long term as Omega benefits from a demographic tailwind with the number of baby boomers ages 75 and older (when they're more likely to require skilled nursing care) increasing.