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Reuben Gregg Brewer, The Motley Fool
5 min read
In This Article:
If you are looking for reliable dividend payers with high yields as March gets underway, then you’ll want to get to know Enterprise Products Partners (NYSE: EPD), Chevron (NYSE: CVX), and Enbridge (NYSE: ENB). With yields of up to 6.4% backed by decades of annual increases, all three of these investment opportunities are highly compelling. In fact, you might end up wanting to buy all of them once you dig into the numbers. Here’s why.
Enterprise Products Partners is a North American midstream giant. It basically owns the pipeline, storage, processing, and transportation assets that help to move oil and natural gas around the world. The key is that it charges fees for the use of its assets, so the volatile prices of the commodities it transports are less important than the demand for those commodities to Enterprise’s top and bottom lines. Demand for energy tends to remain high in both good markets and bad.
This is how Enterprise has managed to increase its distribution annually for 26 consecutive years. The distribution, meanwhile, is covered 1.7 times over by the master limited partnership’s (MLP’s) distributable cash flow. And it has an investment grade-rated balance sheet. In other words, a lot would have to go wrong before the distribution would be at risk of a cut. That’s the story that backs this 6.4% yield.
Enterprise won’t excite you, but that’s the point. You can buy this midstream giant and rest easy while you collect its large distribution. If you are trying to maximize the income your portfolio generates, that should sound pretty enticing.
It might seem like a notable step down to go from that 6.4% yield to Chevron’s 4.3% dividend yield. The key is that they are very different companies, with Chevron falling into the integrated energy category. This means that it owns production assets (upstream), transportation assets (midstream), and chemical and refining assets (downstream). The upstream and downstream businesses are far more commodity-driven than the midstream, so Chevron is a way to get more direct exposure to energy prices. If that’s what you are looking for, it is a great option.
The dividend numbers are impressive, with annual dividend increases in each of the last 37 years. Chevron’s yield, meanwhile, is well above the average energy stock’s yield of 3.3%. Notably, like Enterprise, Chevron has a strong financial foundation, with one of the lowest debt-to-equity ratios in its peer group. That’s actually the key to the story because this low leverage allows Chevron to lean on its balance sheet during energy downturns so it can continue to support its business and dividend. When the energy market recovers, as it always has historically, Chevron pays down debt to prepare for the next downturn.