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3 Dividend Stocks I'd Buy Right Now

By Billy Duberstein - Aug 16, 2020 at 7:20AM

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These hefty dividends are holding up quite nicely in this unprecedented recession.

Investors love their dividend stocks -- especially with the current low-interest-rate environment we're in now. However, investors looking for dividend stocks today also face a quandary; many "safer" dividend-paying stocks have been bid up to very high levels, lowering their yields. Meanwhile, any stock with a low share price and high dividend is probably in a riskier part of the economy.

Nevertheless, there are still some intriguing dividend stocks out there that sport hefty yields well above the market average and whose payouts seem highly secure, in spite of COVID-19 fears. While the safety of their dividends could depend on more government stimulus, recent second-quarter results have been better than feared for these three stocks, each with mouth-watering payouts.

Electricity towers and power lines in front of a setting sun.

Image source: Getty Images.

Brookfield Infrastructure Partners: A quality payout and growth opportunities galore

Brookfield Infrastructure (BIP 1.31%) (BIPC 1.03%) is a company that invests in largely recession-resistant infrastructure assets across utilities, transportation, midstream energy, water, and data infrastructure globally. Basically, toll-taking, mission-critical assets that largely hold up in a recession. But Brookfield's long-term returns are anything but boring, handily outpacing the S&P 500 index over the long term, thanks to the company's culture of terrific capital allocation.

Brookfield's results held up quite nicely in the pandemic-plagued second quarter, with funds from operations (FFO) of $0.72 falling by only 5.2% over the year-ago quarter. In fact, aside from the impact of the depreciation of the Brazilian Real, FFO would have been up 3%. Those figures handily cover the company's 4.7% payout, which should eventually rise over time as the stress of the pandemic ebbs.

Moreover, Brookfield has $4.3 billion in liquidity, and ratings agencies reiterated Brookfield's credit rating at BBB+, which is solidly investment-grade. Look for Brookfield to deploy that capital over the coming quarters and years, as management sees new growth opportunities in several sectors: data infrastructure, which will need more data centers and towers for next-gen data transport applications like 5G; midstream energy, where Brookfield sees good values in this beaten-down cyclical sector; and government-owned assets around the world, as nations may look to lighten their sovereign debt burdens int he wake of the pandemic.

In any case, Brookfield looks like a solid buy with its solid dividend, relative safety, and growth prospects -- a rare combination today.

fiber lights up underneath a city skyline in luminescent blue.

Image source: Getty Images.

CenturyLink: Paying down debt and lower costs

Speaking of the data transport business, CenturyLink (LUMN -1.48%) currently pays a 9.3% dividend that is covered about three times over by its free cash flow. CenturyLink has been a troubled stock over the past few years following its merger with Level 3 Communications, which saddled the company with a high debt load. Moreover, the company has several older technology segments that are clearly in decline, such as landline phones, leading to overall revenue declines.

However, underneath these old technologies is one of the world's premier fiberoptic networks, that will be needed to power next-gen connectivity on a global basis. As these fiber-related segments grow, overall declines appear to be stabilizing, and a turnaround could be in the cards.

Last quarter, revenue fell 3.4%, but that was better than analyst forecasts, and a deceleration from a 5.6% revenue decline in the year-ago quarter. Moreover, the company's enterprise segment, its largest (though not a majority) actually grew 1.7% year over year after several years of flat to negative growth.

Moreover, CenturyLink has been able to keep adjusted EBITDA relatively flat or growing thanks to large cost cuts and integration synergies from the Level 3 acquisition. The company grew adjusted EBITDA cost savings to $620 million last quarter, up from $510 million in the first quarter, on the way to a target of $800 million to $1 billion.

And perhaps most importantly, CenturyLink has been paying down and refinancing its debt load. Since the company cut its dividend and announced a three-year de-levering plan in early 2019, CenturyLink has already paid down $2.5 billion in debt. But beyond the mere debt pay-down, CenturyLink has also been able to refinance its older high-interest debt at lower rates due to the low-rate environment and its de-risked balance sheet. In fact, while the company suspended revenue and EBITDA guidance this year, one number it did guide to was for interest expense, which it lowered from $1.8 billion to $1.7 billion.

It should lead to a virtuous cycle; as CenturyLink pays down debt, its credit profile improves, leading to refinancing opportunities at lower rates. Lower interest expenses allow the company to pay down more debt, and the cycle starts  again. Meanwhile, investors get paid nearly 10% while waiting for the turnaround to take hold.

Oil gathering and processing pipes at a plant.

Image source: Getty Images.

Crestwood Equity Partners: Midstream assets still generating cash flow

It's not often that one finds a 16.6%-yielding stock in which the payment will last, but that actually appears to be the case with Crestwood Equity Partners (CEQP 0.92%). The midstream master limited partnership contains gathering and processing systems, pipelines, and marketing and logistics assets across several of America's large shale basins across oil, natural gas, and water.

The oil patch has been hit hard by the COVID-19 downturn, but Crestwood's portfolio of fee-earnings assets has been largely resilient. The company has actually continued to declare and pay out its monster 16.6% dividend despite all the trouble in the sector. Despite one of its large customers, Chesapeake Energy (CHKA.Q) declaring bankruptcy, management reiterated that the company has been current on its payments, and as of now is not challenging the contract in court. Crestwood had renegotiated the contract in 2017 to market rates with very strong language, as Crestwood's assets are the only low-cost way to bring Chesapeake's natural gas to market.

Crestwood has also completed all of its growth capex plans for the year, and should have minimal capex for the remainder of 2020. As such, management recently forecast full-year EBTIDA and cash flow in the mid-to-upper range of its revised annual guidance, which should handily cover the company's distribution.

While the oil sector can be volatile, Crestwood's fee-earning portfolio of assets across a diverse array of basins appears to be holding up quite well in this market, and its hefty payout looks solid for the immediate future.

Billy Duberstein owns shares of CenturyLink and Crestwood Equity Partners LP and has the following options: short August 2020 $8 puts on CenturyLink and short August 2020 $12.5 puts on Crestwood Equity Partners LP. His clients may own shares  of the companies mentioned. The Motley Fool recommends Brookfield Infrastructure and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Lumen Technologies Stock Quote
Lumen Technologies
$10.68 (-1.48%) $0.16
Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
$41.02 (1.31%) $0.53
Crestwood Equity Partners LP Stock Quote
Crestwood Equity Partners LP
$25.26 (0.92%) $0.23
Brookfield Infrastructure Corporation Stock Quote
Brookfield Infrastructure Corporation
$47.18 (1.03%) $0.48
Chesapeake Energy Corporation Stock Quote
Chesapeake Energy Corporation

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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