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Dividend stocks can be one of the best ways for individual investors to supplement income or even build wealth over the long term, and finding high quality companies with stocks that yield higher than average rates can accelerate that wealth building portfolio. The trick is finding quality stocks that can keep those payments going over time. Today, shares of Chevron (NYSE: CVX), Brookfield Infrastructure Partners (NYSE: BIP), and Verizon Communications (NYSE: VZ) all have dividend yields greater than 4%. Here's why you should consider these three high yielding stocks for your portfolio.
Preserving its payout
There's no arguing that Chevron and other big oil companies are in what is probably one of the most brutal oil and gas markets it has faced in decades. To make matters worse, this large downturn came right after a period of massive investment as Chevron was spending big bucks on new projects such as its Gorgon and Wheatstone LNG facilities in Australia and other multi-billion dollar mega projects. As oil prices have fallen, so too have the cash flows the company was using to fund those developments as well as its dividend.
To meet its financing needs as of late, the company has been forced to rely on its balance sheet that was quite strong before the oil crash. Also, as Chevron has brought these development projects online, it has foregone making too many large capital investments to conserve capital and maintain its 30 year streak of increasing dividends. On repeated occasions, management said it will do everything it can to maintain its dividend, and projects it will get back to paying for its capital spending and dividends with operational cash in 2017 even if oil remains in the $50-$55 range at that time.
On the surface, Chevron's earnings don't reflect the prettiest picture, but its financial health has kept its payout afloat for a while and should be able to get back to better times relatively soon.
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Stability in diversity
One of the things that makes Brookfield Infrastructure Partners so compelling as a dividend investment is the company's diverse portfolio of assets that lend themselves well to steady streams of cash. Between its toll roads, electrical transmission lines, pipelines, and rail lines. The kinds of capital intense assets that have immense geographic and regulatory competitive advantages give Brookfield few worries about pricing competition. In fact, more than 90% of its revenue stream comes from either regulated utilities or long term contractual agreements that ensure cash coming in the door quarter in, quarter out.
Another reason that you can be reasonably sure that Brookfield will be able to make its payments to shareholders rather reliably is that management has maintained a rather conservative payout policy. Today, the company only pays out 65% of its funds from operations, which gives its plenty of wiggle room in the event that the company were to run into troubles in one of its business segments. Not that it has been much of an issue, as the company has grown funds from operations at a compounded annual rate of 23% over the past 8 years.
Shares of Brookfield have rallied a bit this year, but the stock still has an attractive distribution yield of 4.7%. If management can continue to grow as it has for close to a decade, today's slightly higher price may still seem modest.
Throwing its weight around
One of the benefits of being the largest telecom provider in the country, Verizon has some pretty big advantages when it comes to pricing power. That can work both ways, it can outlast its competitors in a price war, or it has the ability to raise its prices on customers without too much fear of losing them to competitors. This is something that was on display as recently as this past quarter as the company saw net new subscribers increase despite intense pricing pressure and promotions from its rivals.
Knowing that its position in the market is relatively safe and its generating gobs of free cash flow, there is a lot of security in Verizon's current dividend yield of 4.2%. Not only is the company's current payout ratio a very manageable 61% over the past 12 months, but it's free cash flow generation is more than enough to cover its current dividend and any dividend raises it musters in the coming quarters.
It will take a lot to knock Verizon off the throne, and the company's current subscriber rates suggest that no company is going to catch them any time soon. Unless something very drastic happens, you can rest assured that Verizon's high yielding dividend will continue to rise.
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The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends Brookfield Infrastructure Partners and Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.