This year, some notable companies have cut or eliminated their dividends. For example, former stalwarts Walgreens and 3M ended decades-long streaks of dividend growth with deep cuts to their payouts. It's a situation that can make some investors want to give up altogether on income investing.
However, while some formerly reliable companies have disappointed investors on the dividend front in recent years, others have continued to make their payments no matter what. Enterprise Products Partners (NYSE: EPD), Oneok (NYSE: OKE), and NextEra Energy (NYSE: NEE) stand out to a few Fool.com contributors for their dividend stability. Here's why you should consider adding them to your portfolio.
Enterprise Products Partners is built to pay you well
Reuben Gregg Brewer (Enterprise Products Partners): For 26 consecutive years, midstream energy giant Enterprise Products Partners has increased its distributions. That's a huge commitment to its unitholders, but there's more for income investors to like here than just the distribution history. It all starts with its master limited partnership structure, which is designed to pass income on to investors in a tax-advantaged manner. (A portion of the distribution is usually return of capital.) So down to its foundation, Enterprise is about paying its investors well.
Then, factor in its business model. Enterprise owns energy infrastructure like pipelines, storage, refining, and transportation assets that are vital to the energy sector's operation. However, unlike other segments of the industry, the midstream segment is largely fee driven. Enterprise generates reliable cash flows based on the use of its assets, so the often-volatile prices of oil and natural gas don't really have that big an impact on its financial results. Demand for energy, which is usually strong even when oil prices are weak, is the key determinant of Enterprise's success.
Then there's the fact that Enterprise has an investment-grade rated balance sheet. Moreover, its leverage is normally toward the low end of its peer group, so it is conservative on both an absolute and relative basis. Lastly, the partnership's distributable cash flow covers its distribution 1.7 times over.
All in all, a lot would have to go wrong before Enterprise Products Partners would need to cut its distribution. It is far more likely that it will continue to grow those disbursements, albeit slowly, as its capital investment plans pan out. But slow and steady distribution growth combined with a huge 7% yield will probably sound like music to most dividend investors' ears.
Over a quarter century of growth and stability (and more growth coming down the pipeline)
Matt DiLallo (Oneok): Pipeline giant Oneok has proven its dividend durability over the decades. It has achieved more than a quarter century of dividend stability. While it hasn't increased its payment every year during that period, it has a strong track record on payout hikes. Since 2013, Oneok has produced peer-leading total dividend growth of more than 150%. That's impressive, considering that the world experienced two notable periods of oil price volatility during that period.
Oneoke has delivered sustainable earnings growth over the years. Its portfolio of pipelines and related midstream infrastructure generates predictable fees backed by long-term contracts and government-regulated rate structures. Its earnings grow as the volumes flowing through that infrastructure increase due to production growth, organic expansion projects, and acquisitions.
The company has been on an acquisition-fueled expansion binge in recent years. Last year, it bought Magellan Midstream Partners in a transformational $18.8 billion deal that increased its diversification and cash flow. The highly accretive deal will add an average of more than 20% to its free cash flow per share through 2027. That supports management's view that Oneok will be able to grow its dividend by 3% to 4% annually during that period while also repurchasing shares and reducing its leverage ratio.
Oneok followed that up with a $5.9 billion deal to buy Medallion Midstream and a meaningful interest in EnLink Midstream this August. The transaction will be immediately accretive to its free cash flow and capital allocation strategy. After closing that deal, Oneok plans to buy the rest of EnLink, further boosting its cash flow per share. The company also expects to complete additional organic expansion projects, further enhancing its growth rate.
The midstream giant's investments will help fuel its dividend growth for the next several years, even if there's another market downturn. Those features make Oneok a great stock to buy for those seeking reliable dividends.
A steady dividend grower
Neha Chamaria (NextEra Energy): NextEra Energy, which has a yield of 2.6% at its current stock price, has rewarded its shareholders through thick and thin, and management is determined to continue doing so. The utility and clean energy giant has paid regular dividends for decades, but more importantly, increased them steadily over time. Between 2003 and 2023, the compound annual growth rate (CAGR) of NextEra Energy's dividend was nearly 10%, backed by a 9% CAGR in its adjusted earnings per share (EPS) and an 8% CAGR in operating cash flow during the period.
NextEra Energy operates two businesses -- Florida Power & Light Company (the largest electric utility in Florida) and clean energy company NextEra Energy Resources (the world's largest generator of wind and solar energy). So while its regulated utility business generates stable cash flows, clean energy is where its growth largely comes from.
NextEra Energy expects its adjusted EPS to grow at an annualized rate of 6% to 8% through 2027, and expects annual dividend hikes of around 10% through 2026 as it pumps billions of dollars into both businesses.
More specifically, NextEra Energy plans to spend over $34 billion on Florida Power & Light between 2024 and 2027 and more than $65 billion on renewable energy over the next four years. That's massive, and if done right, should steadily boost NextEra Energy's earnings and cash flows to support bigger dividends for years, regardless of how the economy fares.
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*Stock Advisor returns as of October 7, 2024
Matt DiLallo has positions in 3M, Enterprise Products Partners, and NextEra Energy. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has positions in 3M. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends 3M, Enterprise Products Partners, and Oneok. The Motley Fool has a disclosure policy.
Don't Give Up on Dividends: 3 Dividend Stocks That Reward You Through Thick and Thin was originally published by The Motley Fool