Surging interest rates have put downward pressure on the value of income-producing investments. That's boosting their income yields, making them more attractive to income-seeking investors.
Enbridge (ENB 0.78%), Brookfield Renewable (BEP 1.48%)(BEPC +0.00%), and Enterprise Products Partners (EPD 1.43%) stand out to a few Fool.com contributors for their high dividend yields these days. Here's why they think these stocks are brilliant ways to boost your passive income this month.
Enbridge is cooking with natural gas
NYSE: ENB
Key Data Points
Reuben Gregg Brewer (Enbridge): Investors don't seem to like Enbridge's recent agreement to buy three natural gas utilities from Dominion Energy. The stock is down around 5% since the deal was announced in early September. To be fair, some industry watchers think the Canadian-based midstream giant is biting off more than it can chew here because of the financing costs associated with the deal.
That said, Enbridge's balance sheet is in fairly strong shape today, with leverage well within management targets. That isn't expected to change. And while the three natural gas utilities are likely to be slow-growth assets, they provide notable opportunities for internally sourced growth to support Enbridge's long-term goal of growth of roughly 5% a year on the basis of earnings before interest, taxes, depreciation, and amortization (EBITDA). That's positive because it reduces the company's need to buy or build assets as it looks to extend its 28-year streak of annual dividend increases.
The stock drop on the deal news, meanwhile, has pushed the dividend yield up to 7.6%. That puts the yield up near the highest levels in the stock's history. If you like the idea of owning a high-yield stock with a slow and steady growth profile, now could be a good time to buy Enbridge.
Ample power to keep pushing its payout higher
NYSE: BEPC
Key Data Points
Matt DiLallo (Brookfield Renewable): Leading renewable-energy producer Brookfield Renewable generates very stable cash flows. It sells the power it produces under long-term power purchase agreements (PPAs) with utilities and large corporate buyers. It pays out most of that steady income to investors through a dividend yielding over 5%. That's several times above the S&P 500's current dividend yield of around 1.6%.
The company has increased its payout by at least 5% annually for the past dozen years. That should continue, with Brookfield targeting 5% to 9% annual growth over the long term.
It has plenty of power to achieve that forecast. The company estimates it can organically grow its funds from operations (FFO) by 7% to 12% per share annually through 2028. Powering that forecast is its ability to index rates on its existing PPAs to inflation, lock in higher market power rates as legacy PPAs expire, and invest in high-return development projects. With inflation elevated these days, power prices rising, and a massive expansion project backlog, Brookfield could deliver growth toward the higher end of its organic range over the next few years.
On top of that, Brookfield believes M&A activities could deliver additional FFO-per-share growth of more than 9% annually. It has two big drivers: capital recycling and its growing Brookfield Global Transition Fund (BGTF) platform. The company routinely sells mature assets, giving it funding for higher return developments and new acquisitions. Meanwhile, the company's BGTF platform has opened the door to new acquisition opportunities, since it has a broader investment approach across the energy transition megatrend.
Brookfield's big-time dividend can provide a nice boost to an investor's passive income. Meanwhile, its sizable growth prospects should power healthy dividend growth and attractive total returns over the next several years. That combination makes it look like a wise investment this October.
Checking all boxes
NYSE: EPD
Key Data Points
Neha Chamaria (Enterprise Products Partners): Enterprise Products Partners paid its first dividend in 1998, shortly after the partnership's initial public offering in the United States. Since then, shareholders in the energy infrastructure giant have reaped rich rewards, as Enterprise Products' dividends kept growing year after year. In July, the company increased its dividend by 5.3%, marking its 25th consecutive year of annual dividend increases.
Even better, Enterprise Products' dividends look secure. To be sure, for a typical company, dividends that grow steadily aren't necessarily safe. A company should be able to support its dividend growth with steady cash-flow growth to ensure it can pay out dividends even during challenging times. For a master limited partnership like Enterprise Products, its distributable cash flow (DCF) is an excellent indicator of how sustainable its dividends are.
Since 2008, Enterprise Products' annual DCF has been able to cover its dividends by at least 1.2 times. 2022 was the best year ever for the midstream energy company, with its DCF providing coverage 1.9 times over. One factor that has driven Enterprise Products' DCF coverage higher in recent years is the company's focus on self-funding its growth spending and dividends since 2017. In other words, Enterprise Products doesn't issue shares to fund its growth and dividends anymore. With the company also maintaining capital expenditures and debt at manageable levels in recent years, its cash flows have steadily headed north.
For income investors, it's hard not to like such a stock. Enterprise Products has a solid foothold in the midstream oil and gas industry, generates steady fee-based revenues, prioritizes financial stability and self-funds growth, is committed to growing its dividends every year, and yields a solid 7.3%. So if you don't own this rock-solid dividend stock yet, this could just be the month when you'd want to fortify your portfolio.
