With the Federal Reserve finally cutting interest rates, now is the perfect time to add dividend stocks to your portfolio that have the potential to generate high returns in the years to come.
However, dividend yield should never be the only criterion for choosing which dividend stocks to buy. Stocks that support high yields with stable and growing dividends have the greatest potential to grow over the long term and generate big returns for their investors. With that in mind, here are three rock-solid, high-yielding dividend stocks that you can buy now and hold for a decade.
A bankable high return for the coming decade
The first high yield dividend stock that I find promising is Energy transfer (NYSE: ET)which yields a solid 7.9%. Midstream oil and gas companies offer some of the most bankable dividends in the entire energy sector thanks to their contract-based business models. You could argue that there are better-known stocks with a stronger dividend history than Energy Transfer to buy.
However, Energy Transfer stock has generated much higher returns than its larger peers, Business Product Partners And Enbridgein recent years and could still outperform given growth and dividend targets.
Energy Transfer generates nearly 90% of its revenue from fee-based contracts, meaning that only about 10% of its profits are exposed to the volatility of oil and gas prices. A large portion of those stable profits and cash flows go to its shareholders. To put some numbers on that, Energy Transfer aims to pay out just over 50% of its distributable cash flow (DCF) in dividends, invest up to 40% of DCF in growth, and use the remaining cash to pay down debt and buy back shares over the long term.
Energy Transfer is set to acquire WTG Midstream Holdings in a $3.3 billion deal that will expand its footprint in the Permian Basin. The acquisition and organic growth should give Energy Transfer enough leverage to increase its annual dividend per share by 3% to 5% in the near term. That dividend growth, combined with a high yield, could generate solid returns for investors who buy Energy Transfer stock now and hold it for a decade.
A high-yielding stock in a fast-growing sector
After global renewable energy capacity grew by 50% in 2023, the International Energy Agency (IEA) predicts that the renewable energy sector will grow at its fastest pace ever over the next five years. Buying a renewable energy stock now and holding on for the next decade is therefore a no-brainer investment move. While many stocks look attractive, one undervalued renewable energy stock with a high yield that I would recommend today is Clearway Energy (NYSE: CWEN)(NYSE: CWEN.A).
The IEA expects solar and wind deployment in the US to double by 2028. With 9 gigawatts of capacity across 26 states, Clearway Energy is one of the largest renewable energy producers in the US, specializing in wind, solar and energy storage.
Clearway Energy cut its dividend in 2019, but it wasn’t the company’s fault. A major customer, PG&E, filed for bankruptcy, which hit Clearway Energy’s cash flow. The renewable energy giant quickly regained investor confidence when it raised its dividend again in 2020, and it has continued to increase its dividend every year since.
Thanks to the relationship with Clearway Energy Group (CEG), a company jointly owned by Global Infrastructure Partners and TotalEnergiesClearway Energy has access to CEG’s extensive pipeline of renewable energy projects that it can acquire through drop-down transactions to grow its business.
Clearway Energy is now confident it can grow its annual dividend per share by 5%-8% through 2026. Better yet, the company is already working toward its next cash flow and dividend growth targets for 2027, making its 6.2%-yielding stock an attractive buy-and-hold option for the next decade.
This high-yield stock could be a multibagger
Infrastructure is the backbone of an economy and one of the best ways to invest in it is to buy shares in a well established diversified company that owns various infrastructure assets and operates them to the best of its ability. No company comes close to Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP)making it a stock you should definitely buy and hold for the next decade.
It’s also a dividend growth stock, with partnership units yielding 4.8%, while the corporate shares yield 3.8%. You’d be surprised to know that Brookfield Infrastructure Partners stock has more than tripled investors’ money over the past decade, thanks to dividend growth. Shares of the corporation went public in 2020 and have more than doubled investors’ money since then with reinvested dividends.
What has worked for Brookfield Infrastructure so far should work in the future. Brookfield Infrastructure specifically owns assets in utilities, transportation, midstream energy, and data infrastructure in the Americas, Europe, and Asia Pacific regions. Due to the critical nature of these assets, 90% of the company’s cash flows are contracted and therefore highly predictable and stable.
Much of that cash flow is returned to shareholders as dividends. Since 2009, Brookfield Infrastructure has grown its funds from operations at a compound annual growth rate (CAGR) of 15% and its dividend at a 9% CAGR.
Brookfield Infrastructure is an intriguing play on some of the biggest global trends, such as digitalization and decarbonization. Growth opportunities are plentiful and the company is confident it will grow its annual dividend by 5%-9% over the long term. That rate of dividend growth should support the stock’s yield, setting the stage for potential multibagger returns over the next decade.
Should You Invest $1,000 in Brookfield Infrastructure Partners Now?
Before you buy Brookfield Infrastructure Partners stock, you should consider the following:
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Brookfield Infrastructure Partners and Enterprise Products Partners. The Motley Fool has a disclosure policy.
3 High Yielding Dividend Stocks You Can Buy and Hold for 10 Years was originally published by The Motley Fool
