Income investors often chase high dividend yields, but their money could be at risk if the yield isn't supported by stable and rising dividends. A company that has the financial clout to pay regular dividends and the right commitment to shareholders should eventually generate solid returns for you, both in terms of dividend yield and stock price appreciation. Here are three such incredible stocks that not only yield more than 4% today, but that are also well placed to support their payout.
Sit back and watch this dividend stock grow
With a dividend yield of 4.3%, Duke Energy (DUK 2.37%) is one of the better utility stocks you could own right now. Duke has increased its dividend for 14 straight years. It's poised to continue doing so for the foreseeable future thanks to several factors.
To start, 95% of Duke's operating income comes from regulated utility operations, ensuring income stability. As the largest regulated utility in North America, Duke also has a large customer base, offering diversification. The reason to invest in Duke now, though, lies in its growth prospects.
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Duke recently boosted its five-year capital spending program to $58 billion through 2024 and $65 billion-$75 billion from 2025 to 2029. The company expects the program to drive its rate base up by 6.5% compound annual growth through 2024, with significant focus on clean energy. That could mean 4% to 6% growth in its earnings per share off of the 2021 base, with similar growth in dividends. Combine that with the stock's 4%-plus yield and patient shareholders could easily make high single-digit annual returns from Duke shares regardless of the economic conditions.
Look beyond the risks for big rewards
Enterprise Products Partners (EPD 1.69%) shares currently yield a hefty 8.7%. While there have been concerns about that sky-high yield, the dividend looks safe for several reasons.
To start, Enterprise Products Partners is generating enough cash to support dividends. Its distributable cash flow (DCF) covered distribution by 1.6 times during the nine months ended Sept. 30, 2020.
Also, Enterprise has increased its dividend every year for the past 21 consecutive years, with the last increase in January 2020. Enterprise stopped quarterly dividend increases after the first quarter of 2020, but I'm not ruling out another hike, even if small, in the near future.
Enterprise may not want to break its streak just yet; it's still generating strong cash flows despite the challenging times. For example, it generated flat year-over-year DCF worth $1.6 billion in the third quarter despite a sharp drop in commodity prices.
Enterprise's strong cash-flow position can largely be attributed to three factors. Cost reduction and a conservative balance sheet are two of them. The third, and most important, is its business model. As a midstream company that transports oil and natural gas, Enterprise's operations are largely fee-based and not as vulnerable to falling oil prices as those of oil producers. That's the biggest reason why income investors might want to ignore naysayers and dip into Enterprise Products Partners shares.
Plenty of opportunities for this Dividend Aristocrat
AbbVie (ABBV 0.77%) stock is yielding a solid 5% even after its 15% rally so far this year. The pharmaceutical giant was spun off from Abbott Laboratories in 2013 and has increased its dividend every year since. AbbVie counts as a Dividend Aristocrat given its 49-year streak of annual dividend increases from the time it was part of Abbott. In the third quarter, AbbVie announced a 10.2% dividend raise.
ABBV Revenue (TTM = Trailing 12 month) data by YCharts
AbbVie has grown rapidly in recent years thanks largely to Humira, its key immunosuppressive drug. Not surprisingly, emergent biosimilar competition has made investors jittery, but AbbVie is prepping up for a life beyond Humira. To start, its Rinvoq and Skyrizi drugs, which should replace Humira, are in late-stage regulatory review and on track for faster launches than previously planned. AbbVie projects the two drugs could bring in revenue of more than $15 billion by 2025.
AbbVie's recent acquisition of Allergan, which added Botox and neurological drugs to its portfolio, should be another major growth driver. Allergan generated revenue worth $16.1 billion in 2019. For the full year 2020, AbbVie projects Allergan to add 12% to its adjusted earnings per share.
Meanwhile, management is focused on strengthening AbbVie's financials, targeting a $15 billion-$18 billion reduction in debt by the end of 2021. That's another encouraging move. It should ensure that AbbVie can continue to pay out higher dividends year after year and deliver strong returns for shareholders in the long run.
