While interest rates have crept up a bit in the past year, yields on low-risk investments like bank CDs and government bonds still aren't too appealing. Likewise, the dividend yield of the average stock in the S&P 500 isn't all that attractive at less than 2%. That leaves yield-seeking investors with fewer options.
However, there is one spot in the market loaded with attractive candidates for income-thirsty investors. That's because the pipeline segment currently boasts several high-yield dividend stocks that are excellent investments. Here are six that look like great options to buy right now.
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A high yield with a high growth rate
Canadian energy infrastructure giant Enbridge (NYSE: ENB) currently boasts a 6.1%-yielding dividend. That payout is on solid ground since Enbridge generates very stable income, given that long-term contracts provide about 95% of its revenue. Further, the company has a low payout ratio of less than 65% and a strong investment-grade balance sheet. Meanwhile, the company has a multibillion-dollar expansion program underway that should support a 10% dividend increase in 2020 while setting it up for mid-single-digit earnings and dividend growth after next year. That combination of growth and income makes Enbridge a great option for yield seekers.
A low-risk high yield
Enterprise Products Partners (NYSE: EPD) is one of the largest midstream master limited partnerships (MLP) in the pipeline sector and offers investors an outsized yield that's currently 6.2%. This payout is also on solid ground since Enterprise Products Partners has secured long-term contracts to lock in more than 85% of its earnings. On top of that, the company has one of the best balance sheets among MLPs and a low payout ratio. Further, it too has a multibillion-dollar expansion program underway that should enable Enterprise Products Partners to continue its dividend growth streak, which now stretches more than 20 years.
Low risk with steady growth
Magellan Midstream Partners (NYSE: MMP) is right up there with Enterprise for having one of the best balance sheets among MLPs. That top-tier financial profile increases the company's ability to sustain and grow its attractive 6.6%-yielding distribution. Magellan Midstream currently anticipates that it can increase that payout by another 5% this year and at a 5% to 8% rate in 2020 as it completes its current slate of expansion projects. That combination of healthy income, steady growth, and a top-notch financial profile makes Magellan Midstream an excellent option for risk-averse investors.
High-octane dividend growth
Noble Midstream Partners (NYSE: NBLX) is very early in its growth cycle because it just went public in late 2016. Since that time, the MLP has grown its cash flow at breakneck speed through a series of expansion projects and acquisitions. That allowed Noble Midstream to increase its distribution at a 20% compound annual rate, which has pushed its yield up to nearly 6.4%. Noble Midstream expects to maintain this high-octane dividend growth rate through at least 2022 as it completes its growing backlog of expansion projects, which it recently bolstered through three needle-moving deals. This outlook makes Noble Midstream an ideal option for investors seeking an opportunity to potentially earn some outsized total returns.
Big-time growth ahead
Crestwood Equity Partners (NYSE: CEQP) offers an even more attractive yield at 7.5%, which it can comfortably cover with cash flow. However, unlike the others on this list, Crestwood Equity doesn't expect to increase its payout this year. That's because the MLP currently plans to plow all its excess cash into its growing slate of expansion projects, which should give the company the fuel to grow its cash flow at a more-than-15% annual rate through 2020. Once it's past this heavy investment phase, Crestwood Equity should be in a better position to return more cash to investors. In the meantime, it offers a sustainable high yield with some enticing upside.
A massive yield with significant upside
Tallgrass Energy (NYSE: TGE) currently boasts the biggest payout in this group at 8.9%. The pipeline company can easily support that big dividend since it generates very stable cash flow backed by long-term contracts, has a conservative payout ratio, and has a solid balance sheet. However, what makes Tallgrass Energy even more enticing is its growth prospects. The company currently has three large-scale oil infrastructure investments under development, which could fuel significant growth in the coming years. As such, investors are getting paid very well to wait for that upside to materialize.
A high yield now with an even bigger payday later
All six of these pipeline companies currently offer yields above 6%, which makes them attractive options for income-seeking investors. However, in each case, these companies complement those high yields with not only solid financial profiles, but compelling upside as they expand their energy infrastructure footprints. That future growth means that today's high yields could be even larger in the future, which is why income-focused investors should take a closer look at these investment opportunities.
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Matthew DiLallo owns shares of Crestwood Equity Partners LP, Enbridge, and Enterprise Products Partners. The Motley Fool recommends Enbridge, Enterprise Products Partners, and Magellan Midstream Partners. The Motley Fool has a disclosure policy.