The S&P 500 index is offering a teeny-tiny dividend yield of just 1.2% today. In comparison to that, Portland General Electric's (NYSE: POR) 4.1% yield looks huge. Brookfield Renewable Partners' (NYSE: BEP) 5.8% is even more impressive. And Enterprise Product Partners'(NYSE: EPD) 7.2% is downright massive!
All of these yields are also above average compared to the industries in which they operate, suggesting the stocks are cheaply priced today. Here's a look at each one.
1. Enterprise Products Partners is built to be boring
Enterprise Products Partners is a midstream master limited partnership (MLP). It owns energy infrastructure assets like pipelines and processing and transportation facilities.
Unlike many other energy companies, whose revenue and earnings are largely determined by commodity prices, Enterprise gets paid fees for the use of its assets. Thus, demand for energy is more important than the price of the products flowing through its midstream system. It's actually kind of a boring business, which conservative income investors will probably appreciate.
As noted, the yield is 7.2%, backed by a distribution that has been increased annually for just over a quarter of a century. The average yield in the energy sector is 3.2%, and Enterprise's average yield over the past decade is around 6.8%.
The MLP looks attractively priced today relative to both. But what's backing that yield? Well, there's no need to worry. Enterprise has an investment-grade balance sheet, and distributable cash flow covers the payout 1.7 times over. A lot would have to go wrong before a distribution cut was on the table. Keep in mind, though, that as a master limited partnership, there are some complications come tax time and not all MLPs can be held in a retirement account.
2. Brookfield Renewable is focused on a growing niche
Brookfield Renewable comes in two flavors, a partnership with a 5.8% yield and a corporate version, Brookfield Renewable(NYSE: BEPC), with a 5.1% dividend yield. They represent the exact same entity, with the difference between the two yields related to demand (some investors avoid partnerships, including many institutional investors, like pension funds).
Brookfield Renewable, as its name implies, invests in renewable power, a niche of the utility industry that's expected to see growth for years to come as the world shifts from carbon fuels to cleaner alternatives. Its asset portfolio spans North America, South America, Europe, and Asia, and it covers hydroelectric, wind, solar, and battery storage.
In other words, it's a one-stop shop for renewable power. And the best part is that the vast majority of its revenue comes from contracts, so the business is highly reliable.
Brookfield Renewable has increased its distribution for over a decade. It has an investment-grade credit rating and a solid 70% payout ratio of funds from operations in the second quarter of 2024.
The best part is the runway for growth as utilities around the world continue to go green. For reference, the average utility (not a perfect comparison, but the most appropriate one available) yields around 2.9%.
3. Portland General Electric is regulated and increasing its spending
Portland General Electric is a fully regulated electric and natural gas utility. It is about as boring as it comes, and the size of the company (it has a roughly $5 billion market cap) is modest in the utility sector.
But the State of Oregon, where it operates, has an interesting little feature: Transpacific communication cables land in Portland General Electric's territory. That means the utility is an important hub for the technology sector, notably as a location for data centers. The company expects industrial demand to grow at a huge 7.5% a year.
The utility's dividend yield is 4.1%, which compares very favorably to the average utility's yield of 2.9%. The dividend has been increased annually for 18 years. And the balance sheet is investment grade.
Best of all, Portland General Electric is investing heavily in the transition toward clean energy, which should power earnings growth as regulators approve the rate hikes needed to cover the cost. This probably isn't going to be an exciting company to own, but it sure looks like a reliable high-yield dividend stock.
Three high yields to choose from
Enterprise, Brookfield Renewable, and Portland General Electric all have high yields on an absolute level and relative to the industries in which they operate. That suggests they are incredibly cheap passive-income stocks that you could plug into your dividend portfolio. Get to know them a little better and it's likely that one, if not more, will be on your buy list.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners and Enterprise Products Partners. The Motley Fool has a disclosure policy.
