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Forget Kinder Morgan, Inc.: Here Are 3 Better Dividend Stocks

By Matthew DiLallo - Jan 30, 2016 at 9:45AM

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After getting burned by the energy sector this year, investors might want to look beyond the energy infrastructure giant for dividends.

Source: Kinder Morgan.

The current downturn in the energy market has been brutal for investors, especially those seeking income. This is after a countless number of energy companies have cut or suspended shareholder distributions in order to conserve cash, including energy infrastructure giant Kinder Morgan (KMI 0.55%), which slashed its dividend 75%.

This caused a lot of investors to fear putting any money in energy-fueled dividend stocks. The good news is that investors can forget about Kinder Morgan, and instead turn their attention to some other dividend stocks that might be better for their situations.

Kinder Morgan's rough ride
Last year was an awful one for Kinder Morgan investors after the stock crashed 65%, which was actually the primary reason why the dividend was reduced. The company needed a relatively high stock price because it used its stock as currency to pay for new investments.

With that currency no longer available, the company turned to the cash it was paying to investors to fund those investments. Because of this switch, Kinder Morgan's current dividend yield is no longer as robust as it once was, and it might not regain its former glory for quite some time.

Sticking with the infrastructure theme
For those who don't have time to wait for Kinder Morgan's yield to grow, Brookfield Infrastructure Partners (BIP 1.58%) is a good place to start. It's actually fairly similar to Kinder Morgan because more than 90% of its cash flow is backed by contracts or is regulated, enabling it to generate rather consistent cash flow. However, Brookfield Infrastructure Partners' focus is slightly different because it owns backbone infrastructure assets such as electricity transmission lines, toll roads, pipelines, and communications towers, instead of just energy infrastructure.

Another better feature of Brookfield Infrastructure Partners is its stronger credit rating, which is partially due to the fact that it has lower leverage. One reason its leverage is lower is because Brookfield has long retained a large portion of its cash flow to pay for new investments, routinely holding back more than 30% of its cash flow for this purpose, which has lessened its reliance on the capital markets. Despite holding back that cash, Brookfield is currently yielding more than 6%, which is almost double what Kinder Morgan is yielding these days.

The global real estate giant
Sticking with the Brookfield name, but with a focus on a completely different asset class, is Brookfield Property Partners (BPY). The company is one of the largest commercial property companies on the globe. However, not only is Brookfield Property Partners' portfolio global, but it spans far beyond just commercial real estate, with the company's investment portfolio including 138 office properties, 172 retail malls, nearly 40,000 multifamily units, 47 million square feet of industrial space, 27 hospitality properties, and the real-estate supporting 300 auto dealerships.

These assets generate strong recurring rental income, which supports the company's robust 5% yield. Further, the company is investing heavily to build and redevelop real estate assets around the globe, which, when combined with a steady diet of acquisitions, is expected to drive strong distribution growth during the next few years.

Money does grow on trees
Weyerhaeuser
(WY 2.41%) is the world's premier timber, land, and forest-products company, or at least it will be once it completes its acquisition of Plum Creek Timber (PCL.DL) later this year. The pro forma Weyerhaeuser will boast more than 13 million acres of productive timberlands, and will be the largest private timberland owner in the South and Pacific Northwest, which are the two best timber markets in the country.

Further, Weyerhaeuser owns a number of low-cost manufacturing assets, which, when combined with the company's timber and real estate businesses, drives strong and rather consistent cash flow. That cash flow supports a growing and sustainable dividend, which is already yielding a quite generous 5%.

Investor takeaway
Kinder Morgan was once the darling of income investors, but it has been hurt by the continued weakness of the oil market. While there's a case to be made that Kinder Morgan will regain its former glory, some investors need a higher yield right now. Those investors should take a closer look at Brookfield Infrastructure Partners, Brookfield Property Partners, and Weyerhaeuser, because all offer stronger current yields than Kinder Morgan, which are similarly backed by the cash flow from hard assets.

Matt DiLallo owns shares of Brookfield Infrastructure Partners, Brookfield Property Partners L.P., and Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan, long January 2018 $30 calls on Kinder Morgan, and short April 2016 $30 puts on Weyerhaeuser Company. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool recommends Brookfield Infrastructure Partners. 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

Weyerhaeuser Co. Stock Quote
Weyerhaeuser Co.
WY
$36.08 (2.41%) $0.85
Kinder Morgan, Inc. Stock Quote
Kinder Morgan, Inc.
KMI
$18.14 (0.55%) $0.10
Plum Creek Timber Co. Inc. Stock Quote
Plum Creek Timber Co. Inc.
PCL.DL
Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
BIP
$41.01 (1.58%) $0.64
Brookfield Property Partners Stock Quote
Brookfield Property Partners
BPY

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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