The S&P 500 index has an itty-bitty dividend yield of just under 1.3% today. That's not much if you are trying to live off the dividends your portfolio generates.
You can do way better than that with the utility Black Hills(NYSE: BKH) and its 4.4% yield; clean-energy focused Brookfield Renewable(NYSE: BEP)(NYSE: BEPC) with a yield up to 6%; and midstream master limited partnership (MLP) Enterprise Products Partners(NYSE: EPD), which has a hefty 7% distribution yield. Here's a quick look at each of these high-yield stocks as August rolls around.
1. Black Hills is a Dividend King utility
Although Black Hills has the lowest yield on this list, it has the longest streak of annual dividend increases. At 51 years and counting, the utility is a highly elite Dividend King.
Notably, the 4.4% yield is toward the high end of the stock's range over that past decade and above the 3.2% yield of the average utility. Black Hills has a bit more leverage than many of its peers, which has investors worried about the impact of higher interest rates. But history suggests that this will be a temporary headwind.
In fact, management has a constructive outlook. Solid population growth in the core markets that Black Hills serves is expected to support the utility's $4.3 billion five-year capital investment plan. That, in turn, should lead to 4% to 6% earnings growth through at least 2028.
The dividend is expected to grow in line with earnings. That fits with the historical norm here, with dividends increasing roughly 5% a year over the trailing three-, five-, and 10-year periods. This isn't an exciting stock, but for investors with a safety-first investment approach, it should be very appealing.
2. Brookfield Renewable is active all the time
Brookfield Renewable comes in two forms: a partnership that yields 6% and a corporation that yields 5.1%. They represent the same entity; the yields are different because there's more demand for the corporate share class, which is less complicated to deal with come tax time (there's no K-1 form).
That said, Brookfield Renewable owns a globally diversified portfolio of renewable power assets, spread across hydroelectric, solar, wind, and battery technologies.
The big thing to understand here, however, is that Brookfield Renewable is not like a utility. It does not have a monopoly granted by a regulator, and instead sells power under long-term contracts to others, including utilities.
Its portfolio of assets is always being evaluated and changed. Brookfield Renewable focuses on buying assets while they look attractively priced, increasing the value of those assets through competent management and investment, then selling assets if it can get an attractive price. The cash from asset sales is put back to work in new investments.
This approach makes sense given that Brookfield Asset Management manages Brookfield Renewable. However, with a more than decade-long streak of disbursement increases behind it and a target of 5% to 9% annualized distribution growth, income investors should find this a worthwhile choice. And there's a long runway for growth as the world continues to shift away from dirtier fuels and toward renewable power sources.
3. Enterprise Products Partners has an ultra-high yield
By far the highest yield here, at 7%, comes from Enterprise Products Partners. It owns a portfolio of largely fee-based midstream assets in the United States, spanning across pipelines, storage, processing, and transportation. It is a vital (and likely irreplaceable) link between the U.S. energy market and the world.
And since it charges fees for the use of its assets, the price of oil and natural gas is far less important than demand for these still-vital energy sources.
Although yield is the big story here and will make up the lion's share of an investor's returns, it is reasonable to expect distribution growth in the low to mid single digits over time. That's backed up by the fact that Enterprise has increased its distribution annually for a quarter of a century.
The past decade has seen annualized increases of roughly 3% a year, though more recent hikes have been larger. If we assume that the stock price goes up as fast as the dividend growth rate, then 3% growth plus a 7% yield gets you a 10% total annualized return, which is about the return you might expect from the broader market. And given its investment-grade balance sheet and industry-leading leverage metrics, Enterprise is even appropriate for more conservative investors.
Don't give up on yield, just be selective
It can be hard to find attractive dividend-paying stocks in a low-yielding market. But you can still find high-yield stocks like Black Hills, Brookfield Renewable, and Enterprise if you look hard enough.
You just need to make sure you are a discerning investor when you look at high yielders today. But, if you take the time to dig in, you'll likely agree that all three of these opportunities are screaming buys as August gets underway.
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Reuben Gregg Brewer has positions in Black Hills. The Motley Fool has positions in and recommends Brookfield Asset Management and Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners and Enterprise Products Partners. The Motley Fool has a disclosure policy.
