If there's one big pitfall that plagues dividend investors, it is probably being blinded by a huge dividend yield. A huge income stream often leads investors to overlook troubling facts about a business. But a big yield doesn't always mean trouble. This is why the large yields on offer from reliable dividend stocks like Enbridge (ENB 1.23%), Realty Income (O +0.69%), and PepsiCo (PEP +0.59%) could all be worth looking at right now.
1. Enbridge is a toll taker
Enbridge operates in the energy sector, which is known for being highly volatile. However, it happens to operate in the midstream segment of the industry, which is known for being pretty boring. Essentially, Enbridge owns energy infrastructure assets, like pipelines, that move oil and natural gas around the world.
Image source: Getty Images.
This is a toll-taker business, as the company largely charges fees for the use of its assets. Also in the mix are regulated natural gas utilities and a small renewable power division, which are also reliable cash flow generators.
NYSE: ENB
Key Data Points
Reliable cash flows have allowed Enbridge to increase its dividend annually for three decades, in Canadian dollars. Meanwhile, the yield is a lofty 5.8%, which is well above the market's skinny 1.2% yield and the 3.2% average for the energy sector as a whole. Enbridge is never going to excite you, since it is built from the ground up to be boring. But if you are looking for low-risk dividend stocks, that's actually a selling point.
2. Realty Income is huge and slow moving
Another dividend stock that is built so you can sleep well at night while owning it is Realty Income. This real estate investment trust (REIT) is the industry giant in the net lease niche. A net lease requires the tenant to pay for most property-level operating costs, and reduces the risk Realty Income faces from its portfolio.
Risk is further reduced by the fact that Realty Income owns over 15,600 properties with assets spread across the United States and Europe. Even the REIT's focus on retail properties (about 75% of rents) isn't a huge risk because the single tenant properties it owns tend to be easy to buy, sell, and release, if needed.
NYSE: O
Key Data Points
Realty Income's dividend track record is impressive. It has increased its dividend annually for three decades. But within that, this monthly pay dividend stock has increased the dividend for 111 consecutive quarters. The dividend yield is an attractive 5.3% right now, which is clearly better than the market and also notably above the 3.9% yield of the average REIT.
3. PepsiCo is an acquired taste
Enbridge and Realty Income are pretty easy sells when it comes to minimally risky dividend stocks. PepsiCo will be a bit harder, but only if you think short term instead of focusing on the long term.
PepsiCo is one of the largest consumer staples companies on the planet. It has a portfolio diversified across beverages (Pepsi), salty snacks (Frito-Lay), and packaged foods (Quaker Oats). It can stand toe to toe with any competitor with regard to distribution, marketing, and innovation. It is also large enough to use acquisitions to jump start its brand portfolio when consumer preferences change.
And that's exactly what it has been doing lately, with the recent addition of Poppi and Siete. But the need for those acquisitions highlights the problem that some investors might have here, PepsiCo's business isn't actually performing as well as its peers right now. That happens from time to time and good companies adjust to get back on track, which is what PepsiCo is working to do right now.
NASDAQ: PEP
Key Data Points
PepsiCo has proven over time that it has a strong playbook to follow, a fact highlighted by its status as a Dividend King. A company doesn't increase a dividend for 50+ years by accident. If you can handle a very low-risk turnaround situation, PepsiCo's 3.7% yield could be of interest to you. While lower than the two yields above, PepsiCo's yield is attractive because it is well above the average consumer staples yield of just 2.7%.
Maybe buy all three
If you are trying to find reliable dividend stocks, Enbridge, Realty Income, and PepsiCo will all fit the bill given their long histories of regular dividend increases. You can pick the ones that best suit your investment preferences. But the best call might be buying all three, if you don't already own them.
