Dividends provide you with cash from your investments, so you don't have to sell those investments to generate the cash you need to live. It's why investors love dividends so much and why you need to make sure the stocks you buy have what it takes to keep paying through good markets and bad. Here are three high-yield stocks that have proven their dividend credentials over time, and you may want to consider them for your portfolio.
1. Enbridge: In the middle of the energy transition
Canada's Enbridge (ENB 0.94%) is offering a historically high dividend yield of 6.9%. The dividend has been increased annually for more than 25 years, putting the company in Dividend Aristocrat territory. Notably, the dividend was increased in 2020 despite the steep decline in oil prices that year, thanks to COVID-19-related volatility.
That brings up an important nuance. Enbridge is a midstream company, providing assets that help move oil and natural gas around the world, and it generally gets paid for the use of its assets. Thus, the price of oil and natural gas is much less important than its demand. Demand declined in 2020, but not by a massive amount and not enough to derail Enbridge or its dividend.
There's still more to this story, though, because this energy sector company isn't sitting on its laurels. It uses the cash flow from its carbon-related energy investments to fund spending on clean power projects. That should help protect its dividend for years to come since Enbridge adjusted its portfolio along with the world around it. Notably, although the clean-energy business is only about 4% of earnings before interest, taxes, depreciation, and amortization (EBITDA) today, roughly 30% of its capital spending plans are earmarked for this space.
Image source: Getty Images.
2. W.P. Carey: A globally diversified landlord
Next up is real estate investment trust (REIT) W.P. Carey (WPC +0.41%), which offers a 5.1% yield backed by annual dividend increases every year since its 1998 initial public offering (IPO). Like Enbridge, that includes an increase in 2020, when many other REITs were forced to cut their distributions because of the pandemic.
What's most interesting about W.P. Carey is its broad diversification. By property type, its portfolio is spread across the industrial (25% of rents), warehouse (24%), office (21%), retail (17%), and self-storage spaces (5%), with a sizable "other" category rounding out the mix. On top of that, 37% of the REIT's rents come from outside the United States.
Diversification is good for your portfolio, and it's good for a REIT's portfolio, too. Notably, W.P. Carey tends to invest opportunistically, so having a broadly diversified asset portfolio allows it to put money to work where it sees the best opportunities. So far, the company's approach has worked out very well for income investors, and there's no reason to think it will stop working anytime soon.
ENB Dividend Yield data by YCharts
3. The Kellogg Company: Shifting the food mix
The Kellogg Company (K +0.00%), the last name on this list, shifts the yield level down a notch to 3.6%. However, that's still nearly three times what you would get from an S&P 500 Index fund and toward the high end of Kellogg's historical yield range. The food maker's dividend has been increased annually for 17 consecutive years. It held steady for a few years at the turn of the 21st century but has been paid, without a cut, since its IPO in 1952.
Right now, Kellogg is working to deal with two big issues. First, it overhauled its business just before the pandemic, adjusting its portfolio to better match current market trends. It sold off slower-growing brands and bought more attractive ones. While you may know Kellogg because of its cereals, its portfolio includes snacks, cereals, frozen foods, and emerging markets. That last category includes the company's staple products and things like noodles, which are a major product for Kellogg in emerging markets but not in other regions. Although cereal has been a tough business, snacks and emerging markets appear to offer material growth opportunities over the long term.
The second big issue has been obscuring the first, and that's the pandemic. Demand increased dramatically in 2020 and then started to trail off in 2021 as the world moved past economic shutdowns. That made sales tough to read, though they are still moving in the right direction when looked at over a two-year period (annualized organic sales growth was 5% in the third quarter of 2021 using a two-year period). Meanwhile, inflation has heated up, putting pressure on the company's margins and earnings. Inflation is a constant issue in the food space, with costs eventually passed on to consumers via price hikes. With a rebalanced portfolio and good organic sales growth trends, this food stock is still a dividend name worth owning.
Time for a deep dive
If you don't already own Enbridge, W.P. Carey, and Kellogg, it might be time for you to roll up your sleeves and do some digging. Each has an impressive dividend history, solid business, and an attractive yield. Don't let these opportunities slip by if you are looking for dividend stocks that can keep paying you no matter what's going on in the world.
