There are different ways to build a passive income stream. For example, for those looking to maximize dividends, high-yield Enbridge (ENB 1.54%) will be of interest. Those favoring great companies at cheap prices will find the historically high yield from Stanley Black & Decker (SWK +0.22%) enticing. And conservative investors focused on dividend reliability might prefer utility Black Hills (BKH 2.21%). Here's a quick look at each.
The big yield
Enbridge has a 6.5% dividend yield. It has increased its dividend annually for over a quarter of a century. What's interesting about that streak is that the company operates in the highly cyclical energy sector. The key is that it owns the infrastructure assets that help to move oil and natural gas around the world, charging fees for their use. That is a relatively stable business that generates reliable cash flows.
NYSE: ENB
Key Data Points
That said, Enbridge is not ignoring the clean energy transition that is taking place. Notably, it has been increasing its exposure to natural gas, a fuel expected to help in the clean energy shift, and it is building a clean energy business. The company's capital spending plans are telling. Oil operations are projected to see $1 billion of annual investment for the foreseeable future, with natural gas getting three times as much.
Renewable power gets $1 billion, too, but the business is less than 5% of the company's earnings before interest, taxes, depreciation, and amortization (EBITDA), so it is being supported in a huge way. Ultimately, this midstream giant is preparing for a cleaner future using carbon-derived cash flows.
The turnaround story
Stanley Black & Decker's dividend yield is roughly 4%. The company is a Dividend King with over five decades of annual dividend increases behind it. This industrial company, which makes tools, is cyclical, so business will ebb and flow along with the economy. That's worrisome right now. Even worse, it is dealing with some self-imposed wounds and the lingering supply chain effects of the coronavirus pandemic. That's why earnings have fallen sharply and the stock is down roughly 60% since its 2021 peak, pushing the yield to a historically high level.
NYSE: SWK
Key Data Points
The company, which is best looked at as a fallen angel, isn't hoping for the best -- it is working to get back on track. That's included asset sales to reduce debt left over from recent acquisitions. It has been closing facilities and eliminating products to simplify its product catalog. And it has curtailed production to reduce an inventory overhang built up during the early days of the pandemic.
These are all causing near-term pain, but they should eventually get Stanley Black & Decker back on more solid footing. If you like buying well-run dividend stocks when they are cheap, this is an opportunity for you.
Slow and shockingly steady
Black Hills has a 3.8% dividend yield. It is a Dividend King. And while the yield has been higher in the past, it is about 60 basis points above its five-year average yield. That hints that the stock is attractive right now. But the key to the story is the dividend growth. Over the past one-, three-, five-, and 10-year periods, the company's average annualized growth rate is about 5%. That's incredible consistency.
NYSE: BKH
Key Data Points
To be fair, Black Hills is a utility, so being reliable is pretty much par for the course. And while neither the yield nor the dividend growth rate will likely get anyone overly excited, they can provide a reliable foundation for a more broadly diversified portfolio. The future is attractive here, too, with material population growth in key markets and a clean energy transition ahead to help support rate increases. Conservative investors will probably find a deep dive into the Black Hills story interesting.
All of the above?
Enbridge, Stanley Black & Decker, and Black Hills are all reliable dividend stocks that will likely be attractive to different types of investors. However, if you step back, putting all three of them together (a high yielder, a fallen angel, and a reliable utility) might actually be the best choice of all. Even if that's not your choice, it is likely that one of these companies can help you hit the gas on your passive income stream today.
