Dividend stocks are a great way to invest no matter how much money you have available, be it $200 or $2,000. A good way to identify investment candidates is to consider a combination of dividend yield and dividend consistency. On these two metrics, Enterprise Products Partners (EPD 1.41%) and Stanley Black & Decker (SWK) stand out. But they aren't appropriate for the same kinds of investors. Here's what you need to know.
Boring is beautiful
Enterprise Products Partners is a master limited partnership (MLP) that operates in the energy sector. There's an important nuance here, however, because it owns things like pipelines, storage, transportation, and processing facilities. It charges customers fees for using these vital infrastructure assets. That means that demand for oil and natural gas, and the things they get turned into, is more important to the MLP's top and bottom lines than commodity prices.
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This is how Enterprise has put up such an impressive string of annual distribution increases, now totaling 24 years. Given the highly cyclical nature of the energy sector, that's a pretty incredible record, and it speaks to the importance of the MLP's assets to the global energy sector. Although investors shouldn't be expecting a material amount of growth from Enterprise, it offers a huge 7.5% distribution yield. If you're looking to maximize the income you generate from your portfolio, that should sound very attractive.
But risk is always an issue to consider when you see a yield like that. Slow growth in the future is one risk, as most of the really attractive midstream opportunities have already been developed in North America, meaning that the yield is going to represent most of your return over time. The other big risk is the safety of the payout, but it was actually covered by distributable cash flow by roughly 1.9 times in the fourth quarter of 2022. There's a lot of room for adversity in that number, suggesting that even the most conservative investors should be comfortable owning Enterprise. And its stock price is around $25, so it falls in a range that's easily affordable if you have $200 or less to put to work.
For the opportunist
The next name to consider is Stanley Black & Decker, but it's only appropriate for more aggressive investors. That said, its roughly $80 share price also puts it well within reach of investors with just a couple of hundred dollars to invest. Here's the attractive thing right now: The 4.1% dividend yield is near the high end of the company's historical yield range. That suggests that Stanley Black & Decker is very cheap today.
Don't rush in just yet, though, because there's a reason for the high yield. The company posted adjusted earnings of $10.48 per share in 2021, less than half that in 2022 ($4.62 per share), and it projects that adjusted earnings will fall between break-even and $2 per share in 2023. Based on that precipitous decline, it might not be shocking to know that the stock price has fallen by more than 40% over the past year.
Management isn't hiding from the problems, however, and it is actively working to right the ship. That includes cost-saving efforts (like closing plants and rightsizing the company's product portfolio), reducing debt, and investing in product development (notably batteries). The issue is that it will take time for things to improve. Owning the stock could be emotionally difficult until there's an uptick in performance, which means risk-averse investors will probably want to avoid it.
That said, Stanley Black & Decker has increased its dividend annually for 55 consecutive years. Its debt-to-equity ratio is a reasonable 0.75 or so. And management has stated that the dividend is of high importance. For investors willing to take on a little risk, this stock could be a good value opportunity.
A couple of solid options
Enterprise Products Partners is a strong high-yield investment that just about any investor could love. Add in a reasonable unit price, and even investors with less than $200 could buy in. Stanley Black & Decker's historically high yield suggests it is cheap today, though there are reasons for that. However, given the dividend history, it might be worth the risk for investors with a slightly more aggressive investment approach.
