Dividend stocks can be a great way to generate passive income. While the average dividend yield in the S&P 500 index is a relatively low 1.5% these days, some stocks offer much more attractive payouts.
Three dividend stocks that stand out for their high yields are energy infrastructure giant Enbridge (ENB 1.09%), healthcare REIT Medical Properties Trust (MPW -0.55%), and gas pipeline company Williams Companies (WMB 0.52%). All three companies offer dividend yields above 5%.
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A fully fueled high-yield dividend
Enbridge's dividend currently weighs in at 7.3%. While that's well above average, the payout is on a very sustainable foundation. For starters, Enbridge generates extraordinarily steady cash flow backed by long-term fee-based contracts and government-regulated rates. Because of that, it has minimal exposure to fluctuations in commodity prices or values. That was evident in 2020 as Enbridge achieved the midpoint of its full-year cash flow guidance despite significant headwinds in the energy market.
Enbridge complements its steady cash flow with a rock-solid financial profile. It has an investment-grade credit rating and reasonably conservative dividend payout ratio. As a result, it has billions of dollars of annual financial flexibility, giving it the funds to invest in expansion projects to grow its cash flow. The company currently has a multibillion-dollar expansion project backlog under way that includes new oil and gas pipelines and offshore wind farms in Europe. The company expects these investments to grow its cash flow per share by 5% to 7% annually, which should support steady dividend increases. That should enable Enbridge to remain an elite dividend growth stock, allowing it to extend its streak of 26 years of consistent dividend increases.
A healthy income stream
Hospital owner Medical Properties Trust currently pays a 5.3%-yielding dividend. This payout is also on a firm foundation. The REIT generates very stable income backed by long-term leases with high-quality hospital operating companies. Meanwhile, it has a reasonable dividend payout ratio and a solid balance sheet.
Those factors give Medical Properties the financial flexibility to make acquisitions and expand its portfolio. The REIT closed nearly $3.6 billion of new investments last year and has secured an additional $1.1 billion in deals so far in 2021. Those additions helped grow its cash flow per share by 21% last year and have it on track for double-digit growth again in 2021. That enabled Medical Properties Trust to increase its payout by another 4%, marking its eighth consecutive annual dividend increase. With a massive addressable market of operator-owned hospital real estate, this REIT should have plenty of opportunities to expand its portfolio and dividend in the coming years.
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Lots of power to continue growing the payout
Natural gas pipeline operator Williams Companies currently offers a 7.1%-yielding dividend. The company supports that high-yielding payout with solid financial metrics. Like Enbridge, it generates very stable cash flow backed by long-term contracts and government-regulated rates. As a result, it produced record results in 2020 despite all the turmoil in the energy market. Meanwhile, Williams has a solid investment-grade balance sheet and generates enough cash to cover its big-time dividend and expansion projects with room to spare. That gave it the confidence to boost its dividend by another 2.5% for 2021.
Williams has a multibillion-dollar opportunity set ahead as it continues expanding its natural gas infrastructure portfolio. Meanwhile, it's evaluating opportunities to expand into even cleaner fuel sources like renewable natural gas and hydrogen, which could power future growth. Because of that, Williams should have plenty of fuel to continue increasing its dividend in the coming years.
These yields could be even bigger in the future
Enbridge, Medical Properties Trust, and Williams Companies offer well-above-average dividend yields backed by solid financial profiles. On top of this, all three expect to continue growing their payouts in the coming years as they make acquisitions and invest in expansion projects. As a result, income investors should benefit from even higher yields in the future, making these stocks among the top dividend options to consider buying these days.
