From the geopolitical conflict in the Middle East to ongoing concerns about inflation, the world is a very uncertain place right now. Leaning into reliable dividend growers could be a smart investment decision, perhaps even doubling up on some companies you may already own.
If buying high-yield stocks sounds good to you, you should probably start your search with Enterprise Products Partners (EPD +0.25%), Realty Income (O 0.18%), and Medtronic (MDT 0.06%). Here's a look at each one and their robust yields of up to 5.7%.
Enterprise sidesteps commodity price volatility
Given the volatility in the energy sector right now, buying an energy stock like Enterprise might sound a bit risky. However, Enterprise operates a portfolio of fee-generating energy infrastructure assets. It gets paid based on the volume of energy it moves; the price of what is flowing through its systems isn't nearly as important. Given the importance of energy to the global economy, however, Enterprise's cash flow tends to remain robust throughout the energy cycle.
NYSE: EPD
Key Data Points
So the lofty 5.7% distribution yield is well supported by cash flows. This is how Enterprise has managed to increase its distribution for 27 consecutive years. But there's more to like about the distribution than just that fact. For example, distributable cash flow covers the distribution by a strong 1.7x. And Enterprise has an investment-grade-rated balance sheet as a backstop should it face any problems.
You should have some energy exposure in your portfolio, and Enterprise is a good choice for those who want income and want to avoid commodity risk.
Image source: Getty Images.
Realty Income has survived hard times before
Realty Income has increased its dividend annually for 31 consecutive years. That's actually quite an accomplishment given that this real estate investment trust (REIT) invests heavily in the retail sector (roughly 80% of rents). The dividend was increased through the recession that followed the dot-com crash, the Great Recession, and the social distancing requirements during the coronavirus pandemic.
Realty Income's dividend yield is an attractive 5.2%. Its adjusted funds from operations (FFO) payout ratio is a reasonable 75%. And, like Enterprise, it has an investment-grade-rated balance sheet. But it is also the largest net-lease REIT by a wide margin, which affords it an advantaged access to capital markets.
NYSE: O
Key Data Points
Realty Income is a bit of a boring tortoise, but for more conservative investors, that will probably be a welcome option in today's uncertain times.
Medtronic has a catalyst
Medical device giant Medtronic's 3.2% dividend yield isn't as lofty as those offered by Enterprise or Realty Income. However, it stands out for its dividend growth over time, with its streak of 48 consecutive years. That's just two years shy of Dividend King status. The company's medical device business is diversified, but there are some important events taking shape.
Medtronic is about to spin off its diabetes business, which will increase the company's profitability. At the same time, the company has some exciting new products that are just entering the market, most notably its Hugo surgical robot system. The combination of higher profitability and increasing revenues from new products could jump-start the company's earnings. That, in turn, would likely lead investors to reward the stock with a higher valuation.
NYSE: MDT
Key Data Points
And even if that doesn't come to pass, the stock's yield is still nearly three times larger than the yield of the S&P 500 index (^GSPC +1.18%). You are getting paid very well to wait for investors to recognize the improvements the company's streamlining efforts are producing.
Time to buy or buy more
The truth is that there's always risk in the market and a reason not to invest. You build long-term wealth by buying good companies while they appear attractively priced and holding for the long term. Sometimes the best time to do that is actually when uncertainty is high. Enterprise, Realty Income, and Medtronic have proven they are reliable income stocks, and now could be the time to take the dive. And if you are already a shareholder, you may want to consider adding to your position.
