Many investors find dividend stocks boring. After all, the best dividend-paying companies are generally mature businesses with stable growth, while growth stocks typically offer significantly higher gains. Yet when markets are in a correction territory, dividend stocks often fare better. This holds true right now.
So far this year, the S&P 500 Index has a negative total return of about 7%. By comparison, the ProShares S&P 500 Dividend Aristocrats ETF (NOBL 0.63%), which is an exchange-traded fund made up of Dividend Aristocrats, has generated losses, including dividends, of roughly 2.2%.
Consistent growth over the years
Oil and gas stocks tend to be volatile, thanks to their dependence on oil prices. However, there are companies in this sector that have shown consistent growth over years. Three such companies are Enterprise Products Partners (EPD -1.13%), Magellan Midstream Partners (MMP), and MPLX (MPLX -0.33%). Cash from operations for all three companies is largely on an upward trend for more than a decade.
Two of them, Enterprise Products and Magellan Midstream, have grown their cash from operations for more than two decades. The steady growth can be attributed to the nature of the operations of the three companies.
All three generate a major chunk of their operational cash flow from long-term, fee-based contracts for transporting and storing oil, gas, and related products. These contracts are not directly dependent on the prices of commodities. And contracts structured to protect the companies from commodity price fluctuations and demand changes help Enterprise, Magellan, and MPLX generate steady cash flow.
Other factors contributing to the companies' consistent growth include huge and diversified asset bases and financial discipline.
These energy stocks pay ultra-high yields
In addition to funding growth projects, all three distribute a chunk of their cash flow to shareholders. As of this writing, Magellan's stock is trading at an alluring dividend yield of nearly 8.3% while MPLX offers a yield of 8.1%. Enterprise stock has a yield of 6.9%.
What's more, the companies have been growing their payouts consistently for years, as the chart above shows. Note that all three are master limited partnerships (MLPs), and investing in these may result in some tax headaches.
While high yields are generally associated with high risks, that isn't the case with these three stocks. All the companies have their payouts well covered with operational cash flows.
In 2021, Enterprise's distributable cash flow (DCF) was 1.7 times the distributions it paid. (DCF is a common metric used to measure the ability of MLPs to sustain or grow their distributions.) For Magellan, the ratio of its DCF to distributions paid was 1.2 times. Likewise, for MPLX, its DCF was 1.4 times the distributions it paid for the year. So all the three companies have their payouts well covered, which shows their ability to sustain the dividends in the coming years.
While these companies have historically generated growing cash flow, investors today are concerned about their ability to continue doing so. But the concerns might be overblown. Not only is the demand for oil here to stay, but energy companies also are finding ways to participate in clean energy growth.
All in all, you can relax and enjoy a solid and growing income stream from Enterprise Products Partners, Magellan Midstream Partners, and MPLX for years to come.