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5 of the Safest High-Yield Dividend Stocks on the Planet

By Matthew DiLallo – Oct 9, 2021 at 9:22AM

Key Points

  • These businesses all generate relatively stable income.
  • The companies also have strong financial profiles.
  • That one-two punch should allow them to sustain and grow their dividends.

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These stocks are great for generating passive income.

This year's rally in the stock market has pushed the dividend yield on stocks in the S&P 500 down to a mere 1.3%. That's its lowest level in roughly two decades.  

While there are stocks out there that offer higher yields, many require investors to take on a higher level of risk. However, there are a few high-yield dividend stocks that stand out for their relatively lower risk profiles. Here's a closer look at five of the safest options.

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Image source: Getty Images.

AvalonBay Communities

AvalonBay Communities (AVB 0.40%) is a real estate investment trust (REIT) focused on owning apartments. The company owns thousands of apartments across 11 U.S. states. While it primarily focuses on higher-cost major cities along the coasts, it has started expanding into faster-growing inland markets across the South.  

Apartments are historically very stable investments. That allows AvalonBay to generate steady rental income to support its dividend, which currently yields 2.9%. In addition to the overall safety of the multifamily sector, AvalonBay boasts a conservative dividend payout ratio of less than 70% of its cash flow and an A-rated balance sheet. Because of that, it has ample financial flexibility to pay a sustainable dividend while growing its multifamily portfolio. 

Brookfield Renewable

Brookfield Renewable (BEP 0.18%) (BEPC 1.56%) operates a globally diversified portfolio of renewable energy-generating assets. It's one of the largest hydroelectric producers and owns growing wind and solar energy platforms. Brookfield sells the power it produces to utilities and corporate customers under long-term, fixed-rate contracts. They generate very stable cash flow, supporting Brookfield's 3.2%-yielding dividend.

The company complements that stable cash flow with a conservative dividend payout ratio and a strong investment-grade rated balance sheet. That gives it the financial flexibility to continue expanding. The company currently expects to grow its cash flow per share by as much as 20% per year through 2025. That should easily support its plan to increase its high-yielding dividend by 5% to 9% per year.

Brookfield Infrastructure

Brookfield Infrastructure (BIP -1.73%) (BIPC 0.98%) is the infrastructure sibling of Brookfield Renewable. It operates a globally diversified portfolio of utilities, energy midstream, transportation, and data infrastructure businesses. These businesses all generate relatively stable cash flow, backed by long-term contracts and government-regulated rates. That helps support Brookfield Infrastructure's 3.5%-yielding dividend. 

Like its renewable sibling, Brookfield Infrastructure also has a conservative dividend payout ratio and investment-grade balance sheet. Those factors give it the financial flexibility to pay a sustainable dividend while continuing to expand its portfolio. Brookfield Infrastructure also envisions growing its dividend by 5% to 9% per year, powered by rising rates, expansion projects, and new acquisitions.

Enbridge

Enbridge (ENB 0.01%) is a Canadian energy infrastructure company. It operates oil and gas pipelines, natural gas utilities, and renewable energy facilities. These assets all generate steady cash flow to support Enbridge's 6.7%-yielding dividend.

Enbridge has been an exceptional dividend stock over the years. It has increased its payout in each of the last 26 years, growing it at a 10% compound annual rate. That growth streak isn't likely to end anytime soon. Enbridge expects to grow its cash flow per share at a 5% to 7% annual rate for the next several years, fueled by a massive multi-billion-dollar backlog of expansion projects, including oil and gas pipeline expansions and new offshore wind farms in Europe.

While Enbridge's fossil fuel assets will face some longer-term headwinds as the world pivots to renewables, it's already slowly transitioning in that direction. Combine all that with a reasonable dividend payout ratio and solid balance sheet, and Enbridge is in an excellent position to keep paying a growing dividend to its investors. 

Realty Income

Realty Income (O 0.30%) is a REIT focused on net lease properties, primarily in the retail sector. It concentrates on net leases because the tenant covers maintenance, real estate taxes, and building insurance. That enables it to generate more predictable income, making it easier to support its 4.3%-yielding monthly dividend.

Meanwhile, Realty Income complements its stable income with a reasonable dividend payout ratio and one of the best balance sheets in the REIT sector. That gives it lots of financial flexibility to expand. It's currently working to close its acquisition of fellow REIT VEREIT (VER), which will create a $50 billion real estate behemoth. That deal will immediately boost its cash flow per share by more than 10%, putting its dividend on an even firmer foundation. It should also allow Realty Income to continue increasing its payout, which it has done 112 times since its initial public offering in 1994. 

Low-risk high-yield dividend stocks

While dividend yields are down overall due in part to rallying stock prices in the last year, investors can still find some attractive options out there. What stands out the most about AvalonBay, Brookfield Renewable, Brookfield Infrastructure, Enbridge, and Realty Income is the overall safety of their payouts. All five companies generate very stable cash flow, and have conservative dividend payout ratios and strong balance sheets. That gives them the financial flexibility to pay attractive dividends and grow their businesses, which should support even higher dividends in the future.

Matthew DiLallo owns shares of AvalonBay Communities, Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Brookfield Renewable Corporation Inc., Brookfield Renewable Partners L.P., and Enbridge. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends AvalonBay Communities, Brookfield Infra Partners LP Units, Brookfield Infrastructure Corporation, and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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