Buying dividend stocks is a no-brainer investment. They generate dividend income and have historically delivered higher total returns with less volatility than the broader market. Over the past 50 years, the average dividend stock has delivered an average annual total return of 9.2% compared to 7.7% for an equally weighted S&P 500 indexaccording to data from Ned Davis Research and Hartford Funds. Meanwhile, dividend growth stocks have actually delivered higher total returns (10.2% annualized).
Children’s Morgan (NYSE: KMI) And Brookfield Renewable (NYSE: BEPC)(NYSE: BEP) are now a no-brainer dividend stock to buy. Their shares are selling for less than $30 each. They can turn less than $200 into a more attractive income stream than an investment in a S&P 500 index fund.
Pumping money into investors’ pockets
Kinder Morgan is one of the nation’s largest energy infrastructure companies. It owns a diversified portfolio of pipelines, processing plants, storage terminals and export facilities. These midstream assets generate terribly stable cash flow supported by government regulated rate structures, fee-based contracts and hedging agreements. Approximately 68% of the company’s cash flow has no price or volume risk, 27% has some variability due to volumes and only approximately 5% is based on commodity prices.
The gas pipeline giant pays out a little bit more than half of its stable cash flow in dividends. Kinder Morgan’s dividend yield is about 5.4% at the current payout level and recent stock price. At that rate, it could turn every $100 invested in its stock into an annual dividend income stream of $5.40. For comparison, the S&P 500 yields about 1.3%, meaning a $100 investment would generate about $1.30 per year in dividend income.
Kinder Morgan is using the remainder of its cash flow to invest in expansion projects, buy back shares and maintain a strong balance sheet. The company currently has $5.2 billion of committed growth capital projects under construction, which should come online by the end of 2028. Projects include new gas pipelines, renewable natural gas production facilities and enhanced oil recovery projects. The company also has a strong balance sheet, to give it the flexibility to make acquisitions when opportunities arise.
These factors give it a lot of insight into its ability to grow its cash flow and dividends. This year marked the seventh consecutive year that Kinder Morgan increased its dividend.
A dividend growth powerhouse
Brookfield Renewable is a leading global renewable energy producer. It sells about 90% of the energy it generates under long-term, fixed-price contracts. Those agreements provide the with stable and growing cash flow (70% linked to inflation). The company uses that money to pay an attractive dividend (currently yielding around 5%).
Brookfield has raised its high-yield distribution by at least 5% per year since 2011 and at a compound annual rate of 6% over the past two decades. It plans to grow its dividend by approximately 5% to 9% annually over the long term.
The company should have enough power to carry out that plan. Inflation-related rate hikes would be Funds from operations (FFO) per share by 2% to 3% per year until at least 2028. In the meantime, other Organic growth initiatives such as margin improvement activities and development projects should boost FFO per share by 5% to 9% annually. Add accretive acquisitions and Brookfield expects to deliver 10%+ FFO per share growth through at least 2028. It has the financial flexibility to achieve this plan thanks to growing post-dividend free cash flow, a strong balance sheet and active capital recycling strategy.
Dividend Growth Stocks That Are a No-Brainer
Kinder Morgan and Brookfield Renewable have been increasing their high-yield dividends for several years now in a row. Given their stable cash flows, strong balance sheets, and visible growth profiles, those trends should continue. That’s why they’re no-brainer dividend stocks to buy now. They should generate growing streams of dividend income and attractive total returns as their share prices rise with their profits.
Should You Invest $1,000 in Kinder Morgan Now?
Before you buy shares in Kinder Morgan, you should consider the following:
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, and Kinder Morgan. The Motley Fool has positions in and recommends Brookfield Renewable and Kinder Morgan. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
2 Dividend Stocks You Can Buy Right Now For Under $200 was originally published by The Motley Fool
