AT&T (NYSE:T), Enterprise Products Partners (NYSE:EPD), and National Health Investors (NYSE:NHI) all offer dividends with yields above 6%, at a time when the S&P 500‘s average is only about 2%. Yet they are priced well compared to competitors in their sectors — all three companies’ shares have tumbled more than 16% over the past year, giving investors a good price point to buy in for those dividends.
These are stable, mature companies, where you’re not likely to see double-digit growth, but they have predictable cash flows, making their high-yield dividends safe.
1. AT&T is a good answer for dividend investors
AT&T is a Dividend Aristocrat that pays an annual dividend of $2.08 per share, giving it a yield of 7.1%. It paid out $15 billion in dividends last year, and with 2020 free cash flow of $27.5 billion, that leaves it with a payout ratio of just below 55%. That’s plenty safe, particularly since the company has raised the dividend by just 6.12% over the past three years.
The concern is that AT&T’s shares have tumbled 24% over the past year. Reported revenue for 2020 was $171.8 billion, down 5.2% over 2019, and operating income was down 77% from 2019. But management is addressing the issues it faces; the company is in the process of selling off its unprofitable DirecTV business, giving it a path to better margins in the coming years.
In the fourth-quarter earnings call, management noted that it had added 1.5 million postpaid phones over the year, the most in a decade, and increased subscriptions to HBO Max and HBO by 7 million. It also said it expects revenue to increase by 1% in 2021 over 2020. That may not knock your socks off, but the point is, AT&T looks to be more profitable this year and its dividend is plenty safe.
2. Enterprise Products Partners keeps the distributions flowing
Enterprise Products Partners’ stock has fallen more than 16% over the past year, but this is a steady midstream energy master limited partnership (MLP) with 50,000 miles of natural gas liquids (NGL), crude oil, natural gas, petrochemicals, and refined products pipelines. The company has raised its distribution (MLPs call their dividends “distributions,” and they have different tax structures than dividends) for 22 consecutive years, including a 1.1% bump this year. The quarterly distribution of $0.45 per share works out to a yield of 8.28%.
The company’s revenue was $27.2 billion in 2020, down 17% year over year. Net income was $3.9 billion, also down 17% compared to 2019, and cash flow from operations (CFFO) was listed as $5.9 billion, down 9% year over year. Those numbers aren’t surprising, because last year was a terrible year for energy companies. People drove less because of the pandemic, and oil prices were already down before coronavirus hit.
Enterprise fared better than most energy companies, however, because it is diversified beyond oil. In the fourth quarter, there were signs of financial improvement as the company reported EBITDA of $2.05 billion, a rise of nearly 2% year over year. In the fourth-quarter earnings call, management said they expect stronger domestic and international demand for NGL, ethylene, propylene, and refined products this year as the economy bounces back.
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