These pipeline companies are excellent options for those seeking to collect passive income.
Investing in high-yield dividend stocks is an easy way to turn idle cash sitting in your portfolio into a lucrative income stream. High-quality income producers can provide you with a steadily rising stream of dividend income.
Pipeline giants Enbridge (ENB 0.75%) and Enterprise Products Partners (EPD) are no-brainers among high-yield dividend stocks. They have superior track records of increasing their already sizable payouts. With low share prices, they’re ideal for those with less than $200 to invest right now.
Lots of fuel to grow its payout
Canadian pipeline and utility operator Enbridge has a forward dividend yield approaching 7.5%. That implies you can earn nearly $7.50 of annual dividend income for every $100 invested in the energy infrastructure company. While U.S. investors are subject to a 15% withholding tax (unless held in an individual retirement account, or IRA), they’d likely pay dividend taxes anyway for companies owned in a regular brokerage account.
Enbridge pays a very sustainable dividend. The company generates extremely durable cash flow (98% comes from stable cost-of-service agreements or long-term contracts) and pays out 60% to 70% of that steady income in dividends. It retains the rest to help fund expansion projects. Enbridge also has a strong balance sheet, with its leverage ratio well within its target range. That gives it additional financial flexibility to fund its growth.
The company currently has a massive backlog of expansion projects under construction, primarily lower-carbon energy infrastructure, like gas pipelines and renewable energy projects. Enbridge also has additional investment capacity to make acquisitions. Those drivers help fuel its view that it can grow its cash flow per share by around 3% annually through 2026 before accelerating to 5% per year after that.
That growing cash flow should give Enbridge the fuel to continue increasing its dividend. The company has raised its payout for 29 straight years, including by more than 3% late last year.
A rock-solid income stream
Master limited partnership (MLP) Enterprise Products Partners currently has a forward yield of more than 7%. As an MLP, its income is largely tax-deferred, making it an excellent way to generate passive income. However, there’s a caveat: MLPs send Schedule K-1 tax forms each year (often later in the filing season), which can complicate your taxes.
The MLP’s sustainable and growing distribution payments can make those tax complications well worth it, though. Enterprise has increased its payout every year for a quarter century, including by more than 5% over the past year.
Enterprise Products Partners generates very stable cash flow, with the bulk coming from assets backed by long-term contracts and government-regulated rate structures. The MLP currently produces enough cash to cover its high-yielding payout by a comfy 1.7 times. That enables it to retain some money to fund expansion projects. It also has a very strong balance sheet (it has the highest credit rating in the midstream sector), giving it even more financial flexibility to fund its continued expansion.
The MLP has several billion dollars of expansion projects under construction, which should come online by the first half of 2026. It has several other projects under development as well, including a potentially needle-moving offshore oil export facility, giving it lots of visibility into future growth. The company also has the financial flexibility to opportunistically make acquisitions.
With a strong financial profile and visible growth ahead, Enterprise Products Partners should be able to continue increasing its high-yielding distribution.
High-quality, high-yielding dividend stocks
Enbridge and Enterprise Products Partners have exceptional track records of increasing their dividend payments. With more growth likely, they’re no-brainer buys for those seeking to turn some idle cash into a lucrative and growing income stream.
Matt DiLallo has positions in 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.
