With yields ranging from 7.7% to 10%, these high-octane dividend stocks can significantly boost investors’ cash reserves.
With yields ranging from 7.7% to 10%, these 3 Top Dividend Stocks can significantly boost investors’ cash reserves.
The investing community has few safe havens left after this year. While the Dow Jones Industrial Average, S&P 500. Nasdaq Composite all fell into bear markets with peak-to-trough losses easily exceeding 20%. The bond market is having its worst year on record
Increased volatility frequently puts investors to the test, but it’s also the best time to do some shopping. In the past, a bull market rally has eventually put a bear market into the rearview mirror. The current bear market will undoubtedly demonstrate that the same is true.
now may be a particularly advantageous time to look for dividend stocks on sale. Dividend-paying publicly traded companies almost always have recurring profits and have definite long-term growth prospects. The fact that they consistently outperform stocks that don’t pay a dividend over extended periods is what matters most.
Income investors desire the highest yield with the least amount of risk in an ideal world. Unfortunately, there are many problems with the investing world. Studies have shown that risk and yield tend to increase together once yields reach 4%. Given that yield depends on payout in relation to share price. A struggling or failing operating model that drags down company’s share price can deceive investors into believing they are receiving supercharged yield. In reality They have fallen victim to a value trap.
In other words, high-yield stocks demand extensive additional due diligence from investors and are occasionally not worth the trouble. However, it’s not always the case.
Enterprise Products Partners: 7.67% yield
Enterprise Products Partners (EPD -0.29%), a high-yield dividend stock, may be the safest investment in the entire energy sector. Enterprise has increased its base annual payout for 24 years in a row.And is currently paying out a yield of 7.7%
Some people experience shivers down their spines at the thought of investing in oil and gas stocks. That’s because during the early stages of the COVID-19 pandemic lockdowns in 2020. Demand for oil and natural gas fell off a cliff. Over the course of a few months, drilling stock prices were completely up and down. West Texas Intermediate crude oil futures briefly falling below $40 per barrel.
Let me assuage your worries:
There are no fluctuating spot prices to worry about for Enterprise Products Partners. This is due to the fact that it is a midstream company that manages over 50,000 miles of transmission pipeline.14 billion cubic feet of natural gas storage.And twenty natural gas processing facilities. In a nutshell, it’s a middleman who transports energy products from the fields to the ports or refineries.
It’s crucial to keep in mind that midstream operators almost exclusively use volume- or long-term fixed-fee contracts. These contracts enable Enterprise to predict its operating cash flow in a given year with accuracy and transparency. How volatile spot prices for oil and natural gas are. It is crucial to understand this cash flow number because it enables the business to set aside funds for infrastructure projects and acquisitions without affecting its distribution or profitability.
In terms of distribution
Enterprise Products Partners’ distribution coverage ratio (DCR) never dropped below 1.6 at any time during the worst of the pandemic. When comparing the amount paid to shareholders to the company’s distributable cash flow from operations, the DCR is used. A value of 1 or less indicates an unsustainable payout.
The company also has $5.5 billion worth of infrastructure projects in the works.The majority of which should be completed by the end of 2023 (bad pun alert!). Enterprise Products Partners appears to be a lock to gain as domestic drilling needs increase.
PennantPark Floating Rate Capital: 10.01% yield
PennantPark Floating Rate Capital (PFLT 0.09%), a little-known business development company (BDC) is the second ultra-high-yield dividend stock that I’d rank as one of the safest on the planet to buy right now. PennantPark, which has been paying a consistent monthly dividend of $0.095 per share for more than seven years, has the highest yield on this list.
BDCs typically invest in middle-market businesses with market caps of $2 billion or less and concentrate on either debt or equity. The majority (87%) of PennantPark’s $1.16 billion portfolio which includes $154.5 million in various common and preferred stock positions—is invested in corporate debt.
Why are middle-market companies in debt?
First of all, when it comes to accessing the debt/credit market, smaller businesses typically have fewer options. Holders of middle-market company debt consequently receive a sizable yield. PennantPark had a 10% weighted average yield on its debt investments as of the end of September.
Additionally, the entire investment portfolio of PennantPark Floating Rate Capital consists of variable-rate debt. The yield PennantPark is earning on its more than $1 billion in corporate debt is also rising as a result of the Federal Reserve’s swiftly rising interest rates, which are intended to counter historically high inflation. The company’s weighted average yield on its debt investments was 8.5% as of the end of June. It is now 10%, as mentioned. Higher rates are excellent for this business.
It’s also important to remember that PennantPark has primarily bought first-lien secured debt; all but $0.1 million of its $1.01 billion in debt is secured by a first lien. In the event of bankruptcy, first-lien secured debt has priority in the collection process. PennantPark has significantly reduced the risk of its debt investment holdings by deciding to invest in first-lien secured debt.
Antero Midstream: 8.17% yield
Antero Midstream (AM), a natural gas stock, is the third extremely secure ultra-high-yield dividend stock that investors can purchase right now. It yields an impressive 8.2%.
Similar to Enterprise Products Partners, investors might be hesitant to trust energy stocks in light of what transpired in 2020. But this is a midstream energy company, as the name suggests. For parent company Antero Resources (AR -1.03%), it primarily performs gathering, compression, water delivery, and natural gas processing in the Appalachian region, more specifically the Utica and Marcellus Shale.
The fact that Antero Midstream has 100% fixed-fee contracts is the best reason to invest in it. This indicates that the business is totally protected from inflation and that it can (cue the drum roll) predict its annual operating cash flow. This openness enabled the business to complete a $205 million deal in September to purchase gathering and compression assets in the Marcellus Shale from Crestwood Equity Partners.
The fact that the global energy complex is a complete mess also favours Antero Midstream (and Enterprise Products Partners, for that matter). Energy companies drastically cut back on their capital expenditures as a result of the pandemic. With the rise in energy demand and Russia’s invasion of Ukraine earlier this year, there are obvious supply concerns. Oil and gas prices could rise steadily as a result of this scenario, which would encourage more drilling and increase demand for energy infrastructure.
The plan by Antero Resources
To increase drilling on Antero Midstream’s acreage is the other significant catalyst. In 2021, the latter actually cut back on its quarterly dividend by 27% in order to accommodate the rise in drilling. Although a payout reduction typically raises a warning sign, there is a very good reason for it. The additional money Antero Midstream “saves” by cutting the dividend can be used to fund infrastructure development to offset the increased drilling by its parent company. By the middle of the decade, this is anticipated to add $200 million in incremental cash flow.