This year has not been a good one for dividend investors. More than 600 public companies reduced or suspended their dividends by the end of the second quarter, including over 60 members of the S&P 500. That trend, which has continued during the third quarter, will likely spur others to take similar actions.
However, it isn't all bad news for dividend investors. Several companies have a durable payout that should have no problem surviving the current economic turmoil. Three that stand out as good buys right now are utility NextEra Energy (NEE -0.75%), industrial REIT Prologis (PLD -1.40%), and pipeline giant TC Energy (TRP -0.55%).
Generating steady dividend growth
NextEra Energy's dividend currently clocks in at 2%, which is slightly above the market's average of 1.7%. It's a rock-solid payout backed by the company's stable income-generating utilities and renewable energy assets. The company further supports its dividend with a relatively low payout ratio (60% vs. 65% for its utility peers) and one of the utility sector's highest credit ratings.
That strong financial profile gives NextEra the financial flexibility to expand its utilities and renewable-energy portfolio. It currently has the biggest expansion backlog in its history, which provides it with a clear line of sight on future earnings and dividend growth. The utility anticipates its earnings expanding by around 8% per year through 2022, which should support dividend growth of about 10% annually during that time frame. That steady profile of dividend growth makes it stand out, given all the problems other companies have had maintaining their payouts this year.
A fast-growing payout backed by in-demand real estate
Prologis currently pays an above-average dividend that yields 2.3%. The REIT also backs up its payout with a rock-solid financial profile. Because its logistics real estate is crucial to supporting e-commerce, its tenants continued to pay their rent like clockwork this year. As a result, Prologis is on track to generate $1 billion in free cash flow this year after covering its dividend.
That gives it the money to continue expanding its real estate portfolio, complemented by a top-tier balance sheet. Those future additions should enable Prologis to continue growing its cash flow, which should support a growing dividend. The REIT has delivered above-average growth over the past five years, increasing its payout at a 10% compound annual rate (versus 9% from the average dividend stock in the S&P 500). With that trend likely to continue, it's an ideal option for those seeking an income stream backed by real estate.
A fully fueled dividend growth engine
TC Energy offers income investors the best of both worlds. The Canadian pipeline giant currently pays a big-time dividend at a 5.1% yield. Meanwhile, it sees lots of growth ahead: an 8% to 10% increase for 2021, followed by 5% to 7% annual growth after that.
Three factors power TC Energy's dividend growth plan. First, it produces stable cash flow backed by long-term, fixed-rate contracts, or government-regulated rates. Second, it has a top-notch financial profile, including a conservative dividend payout ratio (roughly 40% of its annual cash flow) and a top-rated balance sheet. Finally, it has a multibillion-dollar expansion program underway, including contractually secured oil and gas pipeline projects and a life extension of its nuclear power plant. Those all make it a great stock for investors seeking a big yield with enticing growth prospects.
Durable dividends even during these turbulent times
NextEra Energy, Prologis, and TC Energy are ideal dividend stocks. They pay above-average yields that are well-supported by their steady operations and strong financial profiles. Their dividends aren't just surviving but thriving, as all three companies have plenty of power to keep growing their payouts. That makes them ideal buys for income seekers right now.