Yield-focused investors are facing dwindling options these days. With the Federal Reserve slashing interest rates, yields have compressed on most income investments. Meanwhile, with the stock market bouncing back sharply from its COVID-19 bottom, most dividend yields have fallen, pushing the average to less than 2%.
However, several attractive payouts still exist these days. Three income stocks that stand out right now for their above-average yields are Clearway Energy (CWEN -1.20%) (CWEN.A -1.20%), AvalonBay Communities (AVB -0.01%), and Brookfield Infrastructure (BIP -1.33%) (BIPC -0.47%). Those big yields are just part of their attraction, which is why they're currently among my favorite income options.
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High-powered dividend growth
Renewable energy producer Clearway Energy currently yields 3.6%. That payout is enticing for several reasons. For starters, it's on a solid foundation. The company's business model generates stable cash flow backed by long-term, fee-based contracts as it sells electricity to utilities. Meanwhile, the company only pays out about 54% of that money to support its high-yielding dividend.
That low payout ratio enables Clearway to retain cash to help finance expansion. The company already has its next three deals lined up, which should all close by early next year. These new additions will help grow its cash flow per share by 9%, giving it more room to increase its dividend. Meanwhile, it has a large slate of potential acquisition opportunities thanks to its relationships with a renewable project developer and private equity fund. Because of those factors, Clearway could deliver fast-paced dividend growth for the next several years, making it a great income stock to buy for the long haul.
In-demand real estate
Apartment owner AvalonBay Communities currently pays a 4.2%-yielding dividend. That payout is on solid ground despite all the turmoil in the real estate sector. That's because the bulk of its residential tenants have continued to pay rent despite the upheaval in the economy. Overall, it has received 95% of the rent it billed in both April and May. While collections might face some additional pressure if the economy goes into a prolonged slump, the multifamily sector isn't facing the same long-term headwinds as retail and office real estate.
The company further compliments its reasonably stable revenue stream with a rock-solid financial profile. The multifamily REIT boasts a conservative payout ratio of 65% of its cash flow and a solid investment-grade balance sheet backed by a sound leverage profile. That provides it with ample financial flexibility to invest in development projects and make acquisitions, which should enable it to keep growing its dividend.
A big yield with ample growth prospects
Infrastructure operator Brookfield Infrastructure currently offers the highest yield of this trio at 4.7%. That payout is also on solid ground since Brookfield's diversified portfolio of utilities and energy, data, and transportation infrastructure generate steady cash flow, mainly backed by long-term, fee-based contracts or government-regulated rates. The company typically retains 35% of that cash for reinvestment, providing ample coverage of its high-yielding dividend. Meanwhile, it compliments that healthy profile with a strong investment-grade balance sheet.
The company's financial flexibility provides it with the capital to invest in expansion projects and make acquisitions. Brookfield currently estimates that its organic growth drivers alone can support 5% to 9% annual dividend growth. That steadily rising income stream makes it a great option for dividend seeking investors.
Higher yields with lower risk profiles
Clearway, AvalonBay, and Brookfield Infrastructure all offer investors above-average yields. On top of that, they also boast rock-solid financial profiles and ample growth potential. Because of those factors, I'd have no problem adding to my position in any of these dividend stocks right now.
