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5 Top Dividend Stocks to Consider Buying Right Now

By Rekha Khandelwal - Jun 28, 2021 at 6:47AM

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These energy stocks will pay you handsome dividends for decades to come.

Oil prices are firmly above $70 per barrel. But investors who lost money due to volatile oil prices in the last few years are rightly skeptical about investing in energy stocks. Though their prices tend to be volatile, they can provide steady dividend income in the long term.

The key is to select stocks of companies whose earnings are not overly dependent on oil prices. Here are five such stocks to consider adding to your dividend portfolio right now. The dividend yields mentioned are those at the time of this writing. 

Enbridge: 6.4% dividend yield

Canadian pipeline operator Enbridge (ENB 0.91%) has delivered dividend growth for 26 consecutive years. That's a long streak, including periods of extremely volatile commodity prices. Strategically located assets and regulated gas-transmission operations lend stability to the company's earnings. And it intends to continue growing its payout in the years to come.

Enbridge expects to place projects worth $10 billion in Canadian dollars ($8.1 billion) into service in 2021, which should support its cash flow and dividend growth. It aims to grow its cash flow by 5% to 7% annually through 2023. Enbridge expects its 2021 EBITDA to grow 6% over the last year, while its per-share distributable cash flow could rise by nearly 4%. All in all, Enbridge is an alluring stock for dividend investors.

A glass jar full of coins and plant growing through it with some coins and plant leaves.

Image source: Getty Images.

Enterprise Products Partners: 7.4% distribution yield

Enterprise Products Partners (EPD 1.63%) has increased its distributions (MLP speak for dividends) for 22 years in a row. The company is engaged in midstream activities such as transportation, storage, and processing of oil and gas. Enterprise Products' diversified assets and fee-based contracts allow it to generate relatively stable earnings even when commodity prices are volatile.

A couple of factors seem to be weighing on Enterprise Products' stock lately, contributing to its high yield. The first is the possibility of policy changes relating to tax treatment for MLPs. Another concern relates to a possible lack of growth opportunities for the company. But considering policy uncertainties as well as the market environment, Enterprise Products is prioritizing financial flexibility over growth, which seems prudent. That, however, doesn't mean that the company isn't focused on growing. It plans to spend between $1.5 billion to $2 billion annually on growth projects.

The company's financial discipline is its key strength, allowing it to face downturns in commodity price cycles better than its peers. The company's debt-to-EBITDA ratio of 3.3 is lowest among its peers. Enterprise Products' conservative stance should also serve it well in the years to come.

ONEOK: 6.7% dividend yield

Midstream operator ONEOK (OKE 4.34%) is involved in natural gas gathering and processing, in addition to transportation and storage. Gathering and processing operations expose the company's earnings to commodity prices to some extent. Still, fee-based contracts account for roughly 90% of the company's earnings, lending it relative stability.

ONEOK's gathering and processing volumes can be volatile and were hit last year by lower demand. But higher volumes in natural gas liquids (NGLs) and gas transport supported its earnings growth. The company's performance improved significantly this year, giving it the confidence to raise its previous earnings guidance for the year by 10%. In terms of risks, though ONEOK's debt-to-EBITDA ratio has improved recently, it is something worth keeping an eye on.

An engineer staff worker with an offshore oil load vessel background.

Image source: Getty Images.

Williams Companies: 6% dividend yield

Williams Companies (WMB 2.79%) is another midstream operator that has proved to be resilient. Although the company's 2016 dividend cut was painful for shareholders, it paved the way for a stronger balance sheet. Even in the challenging 2020, its AFFO (available funds from operations) was roughly twice the amount it paid in dividends. So the company looks to be in much better shape financially compared to 2015.

Williams Companies reported strong performance in the first quarter with AFFO of $1 billion, up 12% year over year. The company also raised its 2021 AFFO guidance midpoint by $100 million. All in all, the stock's attractive yield looks sustainable, too.

Cheniere Energy Partners: 5.9% distribution yield

Cheniere Energy Partners (CQP 4.43%) is a limited partnership formed by Cheniere Energy (LNG 2.65%) -- the largest producer of LNG (liquified natural gas) in the U.S. Cheniere Energy Partners operates the Sabine Pass LNG facility in Cameron Parish, Louisiana, in addition to certain related regasification facilities and pipelines.

Cheniere Energy Partners' earnings are largely stable thanks to fixed-price agreements with customers, generally with terms of 20 years. Roughly 75% of Cheniere Energy Partners' production capacity is contracted under such long-term agreements. In addition to the fixed fees, the company receives a variable fee that's tied to natural gas prices, based on actual volumes delivered. In case the customer cancels an order, it still needs to pay the fixed fee.

Robust demand for LNG has supported Cheniere Energy Partners' earnings growth over the years. It currently operates five liquefaction units; a sixth is under construction and is expected to become operational in 2022.

Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends Enterprise Products Partners and ONEOK. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Enbridge Inc. Stock Quote
Enbridge Inc.
ENB
$44.28 (0.91%) $0.40
The Williams Companies, Inc. Stock Quote
The Williams Companies, Inc.
WMB
$33.94 (2.79%) $0.92
Enterprise Products Partners L.P. Stock Quote
Enterprise Products Partners L.P.
EPD
$26.84 (1.63%) $0.43
Cheniere Energy, Inc. Stock Quote
Cheniere Energy, Inc.
LNG
$154.77 (2.65%) $4.00
Cheniere Energy Partners, L.P. Stock Quote
Cheniere Energy Partners, L.P.
CQP
$48.77 (4.43%) $2.07
ONEOK, Inc. Stock Quote
ONEOK, Inc.
OKE
$64.96 (4.34%) $2.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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