There is no shortage of strategies to make money on Wall Street. But when push comes to shove, it's tough to top dividend stocks in the return column over long periods.
Last year, Hartford Funds released a report that, in combination with Ned Davis Research, examined the performance of dividend-paying companies relative to non-payers over a half-century (1973-2022). Even though dividend payers were 6% less volatile than the benchmark S&P 500, they delivered a superior 9.18% annualized return over five decades. By comparison, the non-payers generated annualized returns of just 3.95% over the same stretch, with 18% higher volatility than the S&P 500.
The outperformance of income stocks shouldn't come as a surprise. Publicly traded companies that dole out a percentage of their earnings to investors on a regular basis tend to be profitable and time-tested. They're just the type of businesses we'd expect to increase in value over extended periods.
Image source: Getty Images.
The biggest challenge for investors can simply be deciding which dividend stocks to invest in. One sector known for its generous capital-return policies is energy. Thanks to long periods of economic expansion in the U.S. and globally, demand for energy commodities and services tends to remain strong.
If you want to generate $600 in super safe dividend income in 2024, simply invest $6,525 (split equally, three ways) into the following three ultra-high-yield energy stocks, which are averaging a hearty 9.21% yield!
Enterprise Products Partners: 7.49% yield
Arguably the safest high-octane income stock in the energy space is Enterprise Products Partners (EPD 0.45%). Enterprise has increased its base annual distribution in each of the past 25 years and is currently yielding almost 7.5%.
Some investors are likely to be leery of putting their money to work in energy stocks, given what transpired earlier this decade. We witnessed a demand cliff for energy commodities during the COVID-19 pandemic that sent oil and gas drilling stocks plunging. Thankfully, Enterprise was operationally spared from this temporary chaos.
NYSE: EPD
Key Data Points
The key to Enterprise's success is that it's a midstream energy company. In other words, it's effectively a middleman that's responsible for transporting and storing liquid, gas, and refined products.
The all-important ingredient to Enterprise's success is the contracts it negotiates with upstream drillers. Aside from being long-term in nature, they're also predominantly fixed fee. Fixed-fee contracts remove the effects of inflation and spot-price volatility from the equation and allow Enterprise Products Partners' operating cash flow to be highly predictable in any economic climate.
The predictability of the company's cash flow is what's given management the confidence to put approximately $6.8 billion to work in around a dozen major projects, many of which pertain to an expansion of its natural gas liquids operations. As these projects come online over the next two-plus years, they'll further enhance the company's profits and cash flow.
The last thing to note about Enterprise Products Partners is that it's perfectly positioned to benefit from tight global oil supply. Russia's invasion of Ukraine, combined with roughly three years of capital underinvestment by energy majors during the pandemic, has constrained oil supply worldwide. This is a recipe for a higher crude oil spot price, which should encourage domestic drillers to up their production. In short, Enterprise is in a good position to land more lucrative long-term deals.
NYSE: AM
Key Data Points
Antero Midstream: 7.23% yield
A second ultra-high-yield energy stock that can help you generate $600 in super safe dividend income in 2024 from a starting investment of $6,525 (split three ways) is Antero Midstream (AM 1.76%).
As its name indicates, Antero Midstream is also a midstream energy company that earns its keep from fixed-fee contracts. But unlike Enterprise Products Partners, Antero Midstream focuses on processing, gathering, and water handling services for natural gas producers. In fact, most of its contracts are with parent company Antero Resources (AR 2.96%) in the Marcellus and Utica Shales.
There are three catalysts that make Antero and its 7.2% yield incredibly attractive in the new year (and beyond) for income seekers. The first is that Antero Midstream has completed its costliest infrastructure projects. Management anticipates a decline in annual capital expenditures moving forward, which will allow the company to increase its cash flow from operations and deleverage its balance sheet.
Secondly, Antero Midstream is enjoying incremental benefits from its bolt-on acquisition strategy. For instance, it acquired natural gas gathering and compression assets in the Marcellus Shale from Crestwood Equity Partners in 2022 in a $205 million all-cash deal. These prudent bolt-on deals are often immediately accretive to Antero Midstream's bottom line.
The third catalyst comes courtesy of parent Antero Resources, which is increasing its natural gas drilling on Antero Midstream-owned acreage. The latter spent big bucks to have the necessary infrastructure in place to accommodate an uptick in drilling activity from its parent company.
With revenue, cash flow, and underlying earnings per share (EPS) all set to increase in 2024, Antero Midstream appears poised to deliver for its investors.
Image source: Getty Images.
Alliance Resource Partners: 12.93% yield
The third ultra-high-yield energy stock that can help you bring home $600 in super safe dividend income in 2024 from a beginning investment of $6,525 (split equally among three stocks) is coal stock Alliance Resource Partners (ARLP 2.84%). Yes, I really did say "coal stock."
Most investors had all but written the obituaries of coal stocks entering this decade. The rise of renewables, such as wind and solar, were expected to make coal progressively expendable as an energy source. However, the COVID-19 pandemic changed everything.
As noted, the global oil supply remains constrained. With most oil and gas companies paring back their capital expenditures over the past few years, coal stocks have stepped up to the plate and helped fill the void. As a result, Alliance Resource Partners has enjoyed a historically high per-ton sales price for coal.
NASDAQ: ARLP
Key Data Points
But higher prices for coal represent just one factor responsible for Alliance Resource Partners' success. Management's forward-thinking approach also plays an important role.
The company has willingly booked production and locked in prices up to four years out. As of the end of September, Alliance Resource had 27.3 million tons committed and priced for 2024, which represents close to 80% of its expected production in the new year. Booking production well in advance ensures highly predictable operating cash flow, which is what helps fuel the company's nearly 13% dividend yield.
Another reason Alliance Resource Partners makes for a smart buy is its conservative approach to production expansion. Whereas most coal stocks have mired themselves in debt, Alliance Resource has a manageable $162.6 million in net debt.
Lastly, this supercharged dividend stock has diversified its operations to include oil and natural gas royalties. If the spot price for crude oil remains elevated due to tight supply, Alliance Resource Partners should enjoy bountiful earnings before interest, taxes, depreciation, and amortization (EBITDA) from its royalty segment.
Valued at less than 5 times forward-year earnings, Alliance Resource Partners is one of the cheapest ultra-high-yield stocks on the planet.
