Sometimes the new year brings big changes. 2019, for example, brought a massive stock market turnaround in the wake of 2018's big slump. But halfway through January 2020, things don't really look dramatically different from late 2019: The S&P 500 has continued its slow-and-steady rise, global oil prices continue to increase, and politicians in Washington are squabbling. It's all pretty familiar.
So it should come as no surprise that some of the best dividend stocks of 2019 are still the best dividend stocks in 2020, combining high yields with solid fundamentals. Three of my favorite 2019 dividend stocks, Royal Dutch Shell (NYSE: RDS-A)(NYSE: RDS-B), Enterprise Products Partners (EPD +0.46%), and Kinder Morgan (KMI 0.07%) are still on my list today. Here's why.
Top dividend stocks reward investors with high payout yields and good prospects for outperformance. Image source: Getty Images.
Still in style
Despite concerns about pressure from renewable energy, an explosion of electric vehicles on the roads, and global oversupply, oil and gas companies are still very much a viable part of the energy landscape. This is doubly true for the biggest companies in the sector: the so-called oil majors, including Royal Dutch Shell.
Shell and British oil major BP have been trading the crown for the top-yielding integrated oil company back and forth between themselves for years. Currently, Shell is on top by the hair of its chinny chin chin, yielding 6.4% to BP's 6.3%. That dividend is super-reliable, too: Although Shell doesn't increase its dividend as regularly as some of the other oil majors, it was able to make it through the oil price downturn of 2014-2017 without cutting its dividend, unlike many others in the industry.
Shell has streamlined its operations and cut costs to make sure it can make money from its oil production even when prices are well below $50/barrel. With Brent Crude currently sitting at about $70/barrel, that's a lot of breathing room for Shell, even if it didn't have its lucrative refining and marketing operations as a fallback.
Shell isn't going anywhere, and barring something truly extraordinary, neither is its dividend, making it a top dividend pick right now.
Regular raises
Shell may not increase its payout often, but midstream master limited partnership (MLP) Enterprise Products Partners, which operates a large U.S. network of pipelines and terminals for crude oil, natural gas, and refined products, has done so every quarter for more than 60 consecutive quarters. That's more than 15 years of quarterly distribution increases.
Nobody should be surprised, then, that Enterprise is currently sporting a 6.1% yield. And Enterprise looks poised to maintain its long history of quarterly payout increases. The company derives about 85% of its income from reliable fee-based sources, which makes it a cash-generating machine. MLP rules require it to hand out most of that cash to investors, or to plow it back into the business.
After rapid revenue and net income growth in 2018 and 2019, the conservatively managed Enterprise is planning on slowing its distribution growth so it won't need to tap the capital markets as often in the future. But slower growth is still growth, and the hefty yield is plenty of incentive for investors to hop on board.
Enterprise looks like a buy for conservative income investors whose portfolios are right for MLP ownership.
The bad boy turned good
For those who aren't interested in MLPs but still like a high-yielding dividend in the energy industry, there's another U.S. pipeline operator to consider: Kinder Morgan, the operator of the largest natural gas pipeline network in the country.
Now, Kinder Morgan hasn't always been a good dividend investment. In 2015, the company slashed its dividend by 75% to deal with weakness on its balance sheet. That prompted a mass exodus from the stock and share prices tumbled. But since then, Kinder has made progress paying down debt and has slowly been upping its dividend again.
Kinder's current yield is 4.4%, which is much less than Shell's or Enterprise's, but Kinder's management is projecting a 25% increase in the dividend this year, which would improve the yield to almost exactly 6% at today's share price. Like Enterprise, the vast majority of Kinder's income -- about 90% -- is from stable sources, and it generates more than $2 billion of free cash flow per year, with a healthy dividend coverage ratio of more than two times.
Kinder should have very little trouble avoiding the problems that caused it to disappoint investors in 2015, and with its dividend set to increase again in 2020 and plenty of growth opportunities ahead, it's an attractive option for income investors.
Newer isn't necessarily better
Sometimes, when looking for investment opportunities, the temptation is to try to find new stocks or stocks you haven't heard of before. While investors should certainly always be on the lookout for top stock prospects, sometimes the best investment from last year is still the best investment this year. High-yielding dividend stocks like Royal Dutch Shell, Enterprise Products Partners, and Kinder Morgan can be top picks for investors year in and year out.
