With some companies, things can change quickly enough that investors need to be on their toes, always up to date with the latest news. For dividend investors, the ideal investment is one that doesn't need to be watched so closely. As long as the dividend payments keep rolling in, quarter after quarter, year after year, a periodic review should be good enough.
There aren't too many high-yield dividend stocks that can truly be bought and ignored. There are far more that need to be watched, with the threat of a dividend cut ever looming. Thankfully, a few of our Foolish contributors have identified three high-yield dividend stocks that don't need a babysitter.
Matt DiLallo: High-yield dividend stocks in the energy sector have performed so poorly over the past year that it probably makes investors want to cry. That's because too many of these companies were either overly exposed to commodity prices, or they relied on the capital markets to fund their growth projects. With commodity prices down and the capital market effectively shut off for most energy companies, many of them have been forced to cut those high yields in order to make ends meet. However, not all companies have faced this same fate, with Enterprise Products Partners (NYSE:EPD) continuing to offer a very generous payout that's not going anywhere but up.
Unlike most midstream MLPs, Enterprise Products Partners retains a substantial portion of its distributable cash flow each year. That's noted on chart in the lower right-hand corner, which shows that the company held on to $2.6 billion in cash flow last year.
Of that cash, $1 billion was generated by its asset base, which typically would be sent back to investors via distributions. Instead, Enterprise Products Partners retains about a quarter of its cash flow and uses it, plus non-recurring cash flow from asset sales, to help fund growth projects. That conservative approach has served the company well because it doesn't need to access the capital market quite as frequently as its peers. That has proven to be a big competitive advantage enabling the company to continue paying a very high distribution, which is currently yielding 6.5%.
In fact, that conservative approach has allowed the company to increase its payout amid the oil market downturn, with it planning to boost its distribution by 5.2% this year. That's keeping up with its history of distribution increases, with the company boosting the payout for the past 46 consecutive quarters. Needless to say, thanks to its conservative approach, this is a high-yield dividend stock that doesn't need a babysitter.
Tim Green: Verizon Communications (NYSE:VZ) has long been a payer of generous dividends. The stock's yield isn't quite as high as it was a few years ago, but at 4.3%, Verizon is certainly in the high-yield category.
Verizon is routinely ranked as the top wireless carrier in the United States, and with the business being extremely capital intensive, the barrier to entry is enormous. In 2015, Verizon spent a staggering $27.7 billion on capital expenditures, producing free cash flow of $11.2 billion even after this heavy spending. This more than covers the dividend, and the payout ratio, based on the company's net income, stood at just 51% last year.
Verizon's dividend is unlikely to grow quickly, but it's a dividend that investors should be able to count on. Verizon is entering new businesses, like video streaming with its Go90 service, to make up for the fact that smartphone growth in the U.S. has slowed down dramatically. Going forward, the company's superior wireless network should continue to generate ample free cash flow for the company, and ample dividends for investors.
Investors should check in once in a while, but Verizon is a dividend stock that doesn't need babysitting.
Brian Feroldi: The crash in the price of oil has thrown the energy markets into turmoil, and that panic has even spilled over into the relatively stable midstream space. Some of the strongest and most stable companies in the space have seen their stocks sold off, which has created a great buying opportunity for investors who like to buy individual stocks. I think one company in particular, Spectra Energy (NYSE:SE), could be a great stock for income-focused investors to take a buy since its shares are still down more than 20% over the last year despite the fact that the company is on sound financial footing.
What sets Spectra Energy apart from other energy companies is that it's mostly focused on transporting natural gas, so its revenue isn't really dependent on the price of oil. In fact, the company expects that 99% of the EBITDA it will generate over the next few years will come from fee-based activities, which help to protects its earnings when the energy markets go crazy. That stability allows the company to pass on the bulk of its profits back to investors in the form of an ever-rising dividend, and it currently offers investors a yield of more than 5%.
As a testament to the company's financial resilience, Spectra Energy raised its dividend by 9% earlier this year, which is a feat not many other energy companies can claim. Better yet, its management team has committed to growing its distribution by $0.14 per share annually between now and 2018, so if you're looking for a high-yield stock that doesn't require babysitting, I'd give this company a closer look.
Brian Feroldi owns shares of Spectra Energy. Matt DiLallo owns shares of Enterprise Products Partners and Verizon Communications. Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Spectra Energy. The Motley Fool recommends Enterprise Products Partners and Verizon Communications. Try any of our Foolish newsletter services free for 30 days.