It's getting tougher for investors seeking above-average dividend yields to find compelling options these days. That's because hundreds of companies slashed or suspended their payouts amid the fallout from COVID-19, with many of those reductions coming from higher-yielding stocks.
However, not all high-yielding dividend stocks cut their payouts this year. Three that stand out for their sustainable above-average yields are infrastructure operator Brookfield Infrastructure (BIP 0.49%) (BIPC -1.87%), renewable energy producer Clearway Energy (CWEN -2.35%) (CWEN.A), and REIT W.P. Carey (WPC -0.56%).
Durability amid the downturn
Brookfield Infrastructure currently yields 4.3%, which is more than double that of the S&P 500. While higher-yielding payouts like that often imply more risk, that's not the case with Brookfield. That has been evident this year. Its business has proven to be almost recession-proof as its cash flow is on track to rise despite the global economic impact of COVID-19. Driving that durability is the company's low-risk business model, which includes essential infrastructure assets backed by regulated rates and long-term contracts, many of which also insulate it from volume fluctuations.
The company complements its steady cash flow with a top-notch financial profile, including a reasonably conservative dividend payout ratio and strong investment-grade credit rating. That gives it the financial flexibility to invest in expansion projects and make acquisitions. In Brookfield's view, its embedded organic growth alone should fuel 5% to 9% annual dividend growth over the long term.
High-powered dividend growth
Clearway Energy yields 4.4% thanks to two dividend increases this year, including a monster 49% boost in August when a key customer emerged from bankruptcy, removing that uncertainty. There's plenty more dividend growth ahead for Clearway as it expects to increase its payout at a 5% to 8% annual rate.
The company anticipates delivering high-end dividend growth in 2021, powered by an increasingly visible investment pipeline, including several wind power acquisitions that are on track to close in the coming months. Meanwhile, its relationships with a leading private equity group and renewable energy project developer should drive additional investment opportunities. Add that to the company's solid balance sheet, and it's a great choice for investors seeking a high-yield dividend powered by clean energy.
Diversification continues to pay dividends
REIT W.P. Carey currently yields 6.8%. Backing that payout is its diversified real estate portfolio, which focuses on mission-critical properties leased to financially strong tenants. That diversified approach and focus on quality have paid off during this year's downturn in the real estate market. Overall, the REIT collected 96% of the rent it billed during the second quarter, including 98% in July. That's well above the average collection rate of some peers, putting its high-yielding dividend on solid ground.
W.P. Carey complements its strong portfolio with a solid investment-grade balance sheet. That has given it the financial flexibility to continue expanding its portfolio, which has enabled it to deliver more than 20 years of dividend increases. That upward trend has continued this year, with W.P. Carey increasing its dividend each quarter. It should continue to do so in future years as it uses its financial flexibility to expand its commercial real estate portfolio.
Excellent options for those seeking above-average yields
While 2020 has been a tough year for income investors, there are plenty of solid high-yielding options out there. Brookfield Infrastructure, Clearway Energy, and W.P. Carey stand out right now for their compelling blend of yield, safety, and growth potential. Because of that, they're excellent options for investors seeking attractive income streams these days.