Some companies excel at paying dividends. They offer above-average income streams that they steadily grow over decades. That makes them ideal for investors seeking to collect passive income.
Enterprise Products Partners (EPD +0.58%), Stanley Black & Decker (SWK +4.20%), and Enbridge (ENB 1.59%) stand out for their combination of dividend yield and durable growth. They have all grown their payouts for more than 20 straight years. That's impressive, given all the challenges they've faced over the years. Here's what a few Fool.com contributors had to say about these three dividend stocks.
Enterprise Products Partners: A milestone year
Matt DiLallo (Enterprise Products Partners): Enterprise Products Partners is rounding the corner on a new milestone: This master limited partnership (MLP) has delivered 24 years of consecutive distribution increases. That has it closing in on a quarter-century of steady growth, which it should achieve later this year. Considering all the volatility in the oil market over those years, it's impressive.
NYSE: EPD
Key Data Points
The midstream company increased its distribution by 5.4% over the past year, and it plans to evaluate another distribution bump midyear. Another payout boost seems likely. Enterprise currently has $3.8 billion of expansion projects on track to enter service through the end of the year. "That gives us good cash flow growth that'll support distribution growth down the road," stated CFO and co-CEO Randy Fowler on the first-quarter earnings conference call.
Meanwhile, Enterprise Products Partners should see more growth coming down the pipeline. The company has $6.1 billion of expansion projects currently under construction that should come online through 2025. It also has several more projects under development, including an offshore oil port and carbon capture and sequestration solutions. Expansion projects will grow its cash flow in the coming years.
The MLP also has an elite financial profile, further supporting its ability to continue growing its distribution. Its leverage ratio is down to 3 times, right in the middle of its recently reduced 2.75 to 3.25 times target range. Meanwhile, it has a low (by MLP standards) dividend payout ratio of 75% of its free cash flow, and that's after factoring in growth capital expenses.
The company's strong financial metrics support its A-rated credit, the highest in the midstream sector. They also put the company's 7.6%-yielding payout on an extremely firm foundation.
Even Dividend Kings like Stanley Black & Decker have problems
Reuben Gregg Brewer (Stanley Black & Decker): When it comes to reliable dividend payers, the cream of the crop can be found on the Dividend Kings list. That's where toolmaker Stanley Black & Decker resides, with a streak of over 50 annual dividend hikes under its belt.
The most recent increase was in the third quarter of 2022, but it was just a token penny per share per quarter. That's because the company is struggling today.
NYSE: SWK
Key Data Points
There's a list of negatives, but it can also be looked at positively. For example, the company is deleveraging its balance sheet and selling noncore operations. It is rationalizing its product portfolio and production footprint. And it is reducing inventory levels to improve profitability.
These are all things you want to see a company do, but they come with costs. In this case, earnings are under material pressure and could fall to zero, on an adjusted basis, in 2023. The company earned more than $10 per share in 2021, so you can see why the stock is in the dumps today, even though the company is setting itself up for a brighter future.
A company doesn't build a five-decade history of annual dividend increases without going through some hard times. And management has been clear that the dividend is a top priority. If history is any guide, the historically high 4% or so dividend yield on offer from this iconic industrial company is a chance to buy a high-yield stock on the cheap.
Enbridge: One of the few reliable oil dividend stocks
Neha Chamaria (Enbridge): Only a handful of oil and gas stocks offer both dividend growth and a high yield. Enbridge is one of them, with its enviable 28-year track record of consecutive dividend increases and a solid yield of 7%.
NYSE: ENB
Key Data Points
Enbridge is a diversified energy infrastructure company, but not many know how big the company really is. It stores, transports, and distributes crude oil and natural gas, and it's one of the largest players in the industry.
In 2022, Enbridge delivered more than 4.3 billion barrels of crude oil, its highest level ever. In fact, the Canada-based energy giant transports almost 30% of all crude produced in North America and transports almost 65% of U.S.-bound Canadian crude exports. Enbridge also moves about 20% of the natural gas consumed in the U.S. And that's not all: Enbridge also operates the largest gas utility by volumes in North America.
This kind of clout in the midstream energy industry means Enbridge can generate high sales volumes and steady cash flows year after year, and it pretty much explains why the stock has consistently given dividend raises to shareholders. Of course, Enbridge also maintains a fine balance between how it uses all of that cash to keep debt at manageable levels, invest in growth, and pay dividends. Without a well-planned capital allocation policy, the company's dividends may not have been this consistent.
With Enbridge targeting a 4% to 6% annual growth in earnings per share between 2022 and 2025 and 5% beyond 2025, the stock's dividend growth streak should continue.
