This year has been challenging for income investors. The COVID-19 outbreak upended the economy, causing it to go into recession. That downturn forced many companies to reduce or suspend their dividends to preserve cash. Meanwhile, the Federal Reserve slashed interest rates, which affected the yields on bonds and bank CDs.
However, while there are fewer attractive options out there for income-seeking investors, that doesn't mean they're out of choices. Three excellent income stocks to consider buying are clean energy producer Clearway Energy (CWEN 1.29%) (CWEN.A 0.90%), apartment REIT Equity Residential (EQR 0.90%), and Canadian pipeline giant TC Energy (TRP 1.16%).
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A sustainable dividend
Clearway Energy currently offers income investors a 3.4%-yielding dividend. The clean energy producer backs that payout with solid financials. First of all, it sells the energy it produces under long-term, fixed-rate contracts to end users like utilities. While one of its largest customers is Pacific Gas & Electric (PCG 1.87%) -- which recently emerged from bankruptcy -- it has been working to reduce its reliance on that riskier utility by making acquisitions that diversify its customer base.
The company complements its steady cash flow profile with a low dividend payout ratio -- currently around 55% -- and a solid balance sheet with leverage metrics in its targeted range. Those features give it the financial flexibility to expand its portfolio, which has it on track to grow its cash flow by 22% this year and 9% in 2021. That should give it the power to keep growing its dividend, making it a great stock for investors seeking a payout powered by sustainable energy.
Passive income from real estate
Leading apartment REIT Equity Residential currently pays a 4.4%-yielding dividend. That's a bit higher than normal because its stock has sold off about 30% this year due to COVID-19's impact on its tenants' ability to pay rent. However, it has collected a much higher percentage of the rent it billed this year than REITs focused on other industries like retail.
Meanwhile, Equity Residential backs its dividend with a top-notch financial profile. It typically only pays out about 65% of its cash flow to support its dividend, which is conservative for a REIT. On top of that, it has one of the highest credit ratings in the multi-family sector. That has given it ample financial flexibility to maintain its dividend during the current downturn in the real estate sector. Because of that, Equity Residential is a great option for investors who want to generate income from real estate but don't want the hassle of being a landlord.
A durable energy dividend
Canadian pipeline giant TC Pipelines offers income investors an even more attractive dividend yield at 5.3%. That big-time payout is due in part to the 15% slide in the company's share price this year because of the volatility in the oil market. However, while energy prices and volumes have tumbled this year due to COVID-19, those fluctuations haven't affected TC Energy's cash flow because its business model -- built largely on take-or-pay contracts -- largely insulates it from those issues.
Meanwhile, TC Energy complements its stable cash flow with a low dividend payout ratio of about 40% and a top-tier credit rating. Those factors provide it with lots of financial flexibility to invest in expansion projects. The company currently has billions of dollars of growth projects under construction, and many more in development. That should give it the fuel to boost its dividend by 8% to 10% next year and grow it at a 5% to 7% annual rate post-2021. That makes it an excellent stock for investors that want clearly visible dividend growth.
Great income options
While this year's economic downturn has taken lots of dividends with it, several excellent options remain. Three of those standouts are Clearway Energy, Equity Residential, and TC Energy. All three boast an above-average dividend yield backed by solid financial metrics, which gives them the flexibility to continue expanding their operations and dividends.
