If you have $200 to invest and are looking for safe and attractive dividends, you'll want to dig into the midstream sector. Two standouts in North America are Enterprise Products Partners (EPD) and Enbridge (ENB 1.05%), with ultra-high yields of 7.4% and 7.5%, respectively. And both can be bought for less than $50 per share. Here's a quick look at each of these reliable income investments.
Enterprise is focused on moving energy
Master limited partnership (MLP) Enterprise Products Partners has increased its distribution for 25 consecutive years. As noted, it offers investors an extremely attractive distribution yield of 7.4%. That's covered by distributable cash flow 1.8 times over, leaving a lot of room for adversity before there's a risk of a cut. And it has an investment-grade balance sheet.
That's a lot of reasons to like Enterprise as a dividend stock. But there's still more to the story. The MLP owns a massive collection of energy infrastructure that helps to move oil and, increasingly, natural gas from where it is produced to where it is ultimately consumed.
As long as demand for energy remains robust, Enterprise's business should continue to throw off attractive cash flows. Notably, most of its revenue is generated from fees for the use of its assets, so the income it produces is fairly reliable and largely untethered from volatile commodity prices.
That said, the high yield is likely to represent the vast majority of an investor's return. Midstream companies grow by expanding their asset base. Most of the really attractive investment opportunities in North America have already been developed. So slow and steady is the likely course from here.
Still, if you are looking for income, high-yield Enterprise should be on your short list.
Enbridge is spreading out into other energy niches
Enbridge has increased its distribution for 28 consecutive years. The Canadian company has a slightly higher yield than Enterprise at 7.5%, along with an investment-grade balance sheet. And its distributable cash flow covered its dividend by roughly 1.5 times in the second quarter.
Like Enterprise, Enbridge owns a massive collection of midstream assets. And it owns a large natural-gas utility business and a clean energy operation.
It just recently inked a deal to buy three natural gas utilities in the United States, which will make it the largest natural gas utility in North America. After the acquisition is complete, around 25% of the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) will come from non-midstream businesses. But virtually all of its cash flows will still be derived from fees, contracts, or regulated assets, so they remain highly reliable.?
The big difference here is clearly diversification, with Enbridge focusing on creating a large pipeline of internal projects to support long-term growth. For example, the trio of U.S. natural gas utilities will require constant investment that will support ongoing rate increases over time.
If you value diversification, Enbridge will probably be your preferred option here. Note, however, that the company pays dividends in Canadian dollars, so the dividend U.S. investors receive will vary along with exchange rates.
High yields and reliable businesses
There's no such thing as a perfect investment, so both Enterprise and Enbridge come with some warts. For example, slow growth is probably the best you can expect from either of these midstream giants. But if you are looking for lofty and reliable dividends, it's a trade-off you will likely be happy to make.
So, if you have a couple of hundred dollars to put to work, take some time to get to know high-yielding Enterprise and Enbridge today.