The stock market remains near an all-time high these days, compressing most stocks' dividend yields. For example, the average one in the S&P 500 is currently around 1.5%.
However, there are still some compelling payouts out there for yield-thirsty investors. Three top dividend stocks that pay more than 5% are natural gas pipeline giants TC Energy (TRP 1.07%) and Williams Company (WMB 0.65%), and office REIT SL Green Realty (SLG -0.52%).
Image source: Getty Images.
A powerful dividend growth plan
Canadian gas pipeline-giant TC Energy currently yields about 5.7%. While payouts that high are usually higher risk, that's not the case here. The company generates very stable cash flow, with 95% of its earnings backed by long-term contracts or government-regulated rates. That makes it nearly immune to the turbulence in the energy sector caused by oil-price volatility.
On top of that, it has a conservative dividend-payout ratio of around 40% of its cash flow. Finally, it has one of the best credit profiles in the pipeline sector. Those factors put its current payout on rock-solid ground while giving it the financial flexibility to continue expanding its operations.
TC Energy currently has billions of dollars of contractually secured expansion projects under construction. That leads it to believe it can grow its dividend by 8% to 10% this year and at a 5% to 7% annual pace post-2021. Thus, it seems likely that TC Energy will continue its dividend-growth streak, which currently has stretched for 20 consecutive years.
A well-fueled high-yielding dividend
U.S. gas-pipeline giant Williams Companies offers an even higher current yield of around 7.1%. That payout is also on solid ground for many of the same reasons. The company generates very stable cash flow, with 98% backed by long-term contracts and government-regulated rates. Meanwhile, it has a fairly conservative dividend-payout ratio of less than 60% of its cash flow and an investment-grade balance sheet with strengthening credit metrics.
Because of that, Williams Companies has the financial flexibility to continue expanding its portfolio. The gas pipeline giant has several expansions underway in the Northeast and Gulf of Mexico regions, which should enable it to continue growing its cash flow and dividends over the next several years.
Standing tall amid the turmoil
Office REIT SL Green Realty currently yields around 5.9%. The yield has risen to such heights because investors are worried that people won't return to the office post-pandemic, which would weigh on office-occupancy levels and rental rates. However, the evidence doesn't support that view.
Many employers can't wait for their employees to return to the office because that setting is better for collaboration, innovation, mentorship, and productivity. Because of that, SL Green has been able to continue securing leases for its office buildings as space comes up for renewal.
Meanwhile, the company spent the past year shoring up its balance sheet by cashing in on demand for high-quality trophy properties by institutional investors. That gave it the cash to pay down debt, repurchase its beaten-down stock, and boost its dividend, including paying a special dividend.
SL Green has now increased its dividend for 10 straight years. Meanwhile, with workers likely returning to the office this year and several development projects underway, SL Green should be able to continue growing its dividend.
Big-time dividends in today's low-yield environment
While the stock market's run-up over the past year has pushed most dividend yields lower, dividend investors can still unearth some high-yielding gems, especially in beaten-down sectors like energy and real estate. In many cases, investors bailed on those entire industries due to fear, causing high-quality dividend stocks like TC Energy, Williams Companies, and SL Green Realty to lose value, pushing their yields skyward. As a result, yield-seeking investors can pick up some high-quality payouts these days.
