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2 Dividend Stocks That Keep On Giving

By Joe Tenebruso - Jan 12, 2016 at 2:29PM

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These income-generating machines should reward investors with steadily rising dividends for the next decade -- and beyond.

The peace of mind that comes from receiving cold, hard cash every quarter is one of the best aspects of dividend investing. Whether it be strong, stable cash flows or fortress-like balance sheets, dividend investors want to know that they can count on these companies to continue to pay out steady -- and even rising -- income for many years to come. In that regard, read on to learn about two of the best income investments available in the market today.

McMahon Gas Processing Plant. Image source: Spectra Energy.

The energy infrastructure growth story
Pipeline company Spectra Energy's (SE) tollbooth-like business model allows it to generate steady cash flows through nearly all manners of market conditions. For example, even after the recent sharp plunge in oil prices -- which has devastated many of Spectra's more commodity-price-sensitive peers -- this best-in-class operator has continued to pump out dividend payments to its investors. In fact, while many of competitors were forced to slash their dividends, just days ago Spectra Energy raised its dividend by more than 9%.

What allows Spectra Energy to deliver such impressive performance? The answer lies in the fact that Spectra has minimal exposure to energy-related commodity prices, with the company projecting that 99% of its ongoing EBITDA for the next two years will be derived from fee-based sources. In addition, the company sports a large backlog of growth projects that should allow Spectra to continue to raise its dividend payout well into the next decade. For these reasons -- and with a current yield of more than 6% -- Spectra Energy's shares look quite enticing.

Image source: Apple.

The tech titan
Apple
's (AAPL 0.03%) share price has taken a hit in recent months on concerns of slowing iPhone sales. But while it's certainly possible that Apple's most important product may be experiencing a deceleration in its previously torrid growth, investors appear to be overreacting.

After a nearly 30% decline from its highs of the year, Apple's stock is now trading well within value territory, with a trailing-12-month price-to-earnings ratio of less than 11 and a forward P/E -- based on analysts' earnings estimates for 2016 -- of less than 10. That's compared with the S&P 500's current TTM P/E of 22 and forward P/E of 17. And let's not forget about Apple's massive hoard of more than $200 billion in cash and investments, which further reduces the valuation investors are placing on Apple's earnings on an ex-cash basis.

Apple's fortress-like balance sheet, particularly when combined with the company's incredible $70 billion in annual free cash flow, makes one thing clear: Apple's dividend is not in jeopardy -- even if iPhone sales slow considerably. In fact, with a payout ratio of only about 20%, Apple should be able to significantly raise its dividend -- which currently yields around 2% -- in the years ahead even if it fails to deliver any earnings growth.  However, with analysts expecting Apple's earnings to increase at an annualized rate of more than 13% over the next five years, that no-growth scenario appears highly unlikely. It's more probable that a combination of impressive earnings growth and an increasing payout ratio will result in annualized double-digit growth in dividends -- and likely capital gains -- for Apple's investors during that time. That makes today a great time to consider purchasing shares.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple and Spectra Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$164.92 (0.03%) $0.05
Spectra Energy Corp Stock Quote
Spectra Energy Corp
SE

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