Thanks to the Federal Reserve, yields on income-producing investments are rising these days as it lifts interest rates. The yields on government bonds and bank CDs are currently around 4%. Meanwhile, the dividend yields on many stocks are even higher because rising rates have put downward pressure on stock prices.
Because of that, those with $1,000 of idle cash can turn that money into an attractive income stream by buying stocks with a big yield. Three enticing options to consider are Atlantica Sustainable Infrastructure(NASDAQ: AY), Enbridge(NYSE: ENB), and Enterprise Products Partners(NYSE: EPD). These energy stocks all offer ultra-high-yielding dividend yields. Even better, these companies should be able to continue growing their big-time payouts in the future.
A sustainable income stream
Shares of Atlantica Sustainable Infrastructure have lost more than a quarter of their value this year. This sell-off has pushed the company's dividend yield up to 6.3%. At that rate, Atlantica could turn a $1,000 investment into a $63 annual passive income stream. That's several times more than the roughly $16 annual passive income stream generated by investing $1,000 into the S&P 500, given its current yield of 1.6%.
One factor weighing on the stock is the steep slide in Algonquin Power & Utilities(NYSE: AQN) -- a major Atlantica shareholder -- after the utility posted a larger-than-expected adjusted loss in the third quarter and cut its full-year forecast. However, that's due to issues at Algonquin's core business, not because of a problem with Atlantica's operations.
Overall, Atlantica is having another solid year. The company's cash available for distribution (CAFD) is up 6.2% so far this year (3% on a per-share basis), powered by the solid results of its existing sustainable infrastructure businesses (renewable energy, natural gas, electricity transmission, and water) and the positive impact of new investments. That has enabled the company to generate enough cash to cover its payout by about 1.18 times, allowing it to retain some money for future investments. Atlantica also has a lot of liquidity to fund new investments. The company has already lined up $150 million of growth-related opportunities this year -- including new solar energy and battery storage projects -- to continue growing its cash flow and dividend.
The fuel to continue growing
Canadian energy infrastructure giant Enbridge offers a big-time dividend yield of 6.2%. That payout is on an excellent foundation. Enbridge generates steady cash flow backed by long-term contracts and government-regulated rate structures. Meanwhile, it only pays out 60% to 70% of its steady income in support of its dividend. That gives it a nice cushion while allowing it to retain cash to fund new investments. Enbridge also boasts a strong investment-grade credit rating, giving it additional financial flexibility.
Those two factors give Enbridge billions of dollars of annual investment capacity. The company estimates it has the funds to grow its CAFD at a 5% to 7% annual rate through at least 2024. Meanwhile, the company has a growing list of expansion projects in its backlog to help grow its cash flow. They include new natural gas pipelines, utility expansion projects, and renewable energy developments.
Enbridge's growing cash flow should enable the energy infrastructure giant to continue increasing its dividend. Enbridge has grown its payout for 27 straight years.
This big-time yield is on a rock-solid foundation
Enterprise Products Partners offers an even bigger yield at 7.7%. That massive payout might be on the firmest foundation of this trio. The master limited partnership generates very stable cash flow backed by long-term contracts and government-regulated rate structures. Meanwhile, it only pays out about 55% of its cash flow to support its big-time distribution. On top of that, it has one of the lowest leverage ratios in the energy midstream sector.
Those features give Enterprise Products Partners tremendous financial flexibility to continue expanding its operations. The company currently has $5.5 billion of expansion projects under construction, including new pipelines, storage terminals, processing plants, and export capacity. Those investments should supply incremental cash flow as they come online over the next few years. That would give Enterprise Products Partners the growing cash flow to continue increasing its distribution, which it has done for 24 straight years.
High-octane passive income streams
Atlantica Sustainable Infrastructure, Enbridge, and Enterprise Products Partners generate stable cash flow to sustain their high-yielding payouts. Meanwhile, they have ample financial flexibility and abundant investment opportunities to continue growing their cash flows. They're excellent ways for investors to turn $1,000 of idle cash into an attractive and growing income stream.
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Matthew DiLallo has positions in Atlantica Sustainable Infrastructure plc, Enbridge, and Enterprise Products Partners. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
