It’s easy to like dividend stocks. The obvious reason is that they supply recurring income. Many dividend payers also offer growth from a rising income stream and capital appreciation potential.
Enterprise Products Partners (NYSE: EPD), Oneok (NYSE: OKE), and Brookfield Renewable (NYSE: BEP)(NYSE: BEPC) stand out to a few Fool.com contributors as great options for income-seeking investors. Here’s why those interested in dividends should take a closer look at this trio.
Enterprise is happy collecting tolls
Reuben Gregg Brewer (Enterprise Products Partners): The energy sector is generally broken down into three segments: upstream (drilling), midstream (pipelines), and downstream (chemicals and refining). Two of them, the upstream and downstream, are highly volatile because they’re largely driven by commodity prices. The other one, the midstream, produces consistent fee income and is, thus, highly reliable. Enterprise Products Partners operates in the midstream.
Enterprise owns a massive collection of vital North American energy infrastructure, helping to move energy around the world. Demand for oil and natural gas, and the products into which they get turned, is far more important to Enterprise’s financial performance than the price of the products moving through its system. Even when oil prices are low, demand for energy tends to remain strong because of the importance the fuel plays in the global economy. Collecting small fees for the use of its pipelines, storage, processing, and transportation assets isn’t sexy, but it is reliable.
The proof shows up in Enterprise’s distribution, which has been increased annually for 25 years. Although distribution growth is likely to be slow, those looking to maximize the income their portfolios generate will appreciate the huge 7% yield on offer here. And that yield is backed by an investment grade-rated balance sheet and a strong 2023 distribution coverage ratio of 1.7. In other words, the risk of a distribution cut seems very low while the chance for more slow and steady increases seems very high.
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