It’s getting more challenging to find attractive passive income streams these days. The dividend yield on the S&P 500 is currently near a 20-year low of around 1.3%. Meanwhile, even traditionally higher-yielding sectors like real estate investment trusts (REITs) are offering relatively low yields (less than 3% on average) following that sector’s big run-up last year.
However, there are a few compelling opportunities out there for yield-hungry investors. Four that stand out as great buys right now are EPR Properties (NYSE:EPR), Enbridge (NYSE:ENB), Medical Properties Trust (NYSE:MPW), and Kinder Morgan (NYSE:KMI).
A big-time monthly dividend
EPR Properties is a specialty REIT focused on experiential real estate like movie theaters and attractions. While those properties came under pressure during the pandemic — forcing EPR to suspend its dividend temporarily — they’ve bounced back as people start enjoying experiences outside the home again. As a result, the REIT’s rental collection rate has continued to improve over the past several quarters, which enabled EPR to reinstate its monthly dividend that currently yields 6.6%.
Meanwhile, EPR has strengthened its balance sheet over the past year so that it now has investment-grade credit. That further enhances the dividend’s sustainability while giving the REIT the financial flexibility to reaccelerate its growth and expand its portfolio of experiential properties. That growth could enable EPR to increase its payout in the future, making it look like a steal at the current yield.
A well-oiled dividend growth machine
Canadian energy infrastructure giant Enbridge currently offers a 6.3% dividend yield. That payout is on a rock-solid foundation. Enbridge generates very stable cash flow backed by long-term contracts. Meanwhile, it pays out a reasonable amount of that steady cash flow (60% to 70%) via the dividend. On top of that, it has a strong investment-grade balance sheet backed by low leverage.
Enbridge has the post-dividend cash flow and balance sheet capacity to invest billions of dollars per year in expanding its portfolio. It also has a multi-billion-dollar secured capital program featuring new oil and gas pipelines and renewable energy projects. These investments have the company on track to grow its cash flow per share at a 5% to 7% annual rate through at least 2024. That should enable Enbridge to continue growing its dividend, something it has done for the last 27 years.
A healthy dividend
Medical Properties Trust currently yields 5.1%. The healthcare REIT backs that payment by generating stable rental income secured by its growing hospital portfolio. It also has a conservative dividend payout ratio of around 60% of its funds from operations (FFO). That enables it to retain cash to continue expanding its portfolio.
The REIT invested $3.9 billion on growing its hospital portfolio last year, which drove double-digit FFO growth. That rising cash flow stream enabled the REIT to increase its dividend for the 9th straight year. With lots of funding sources, Medical Properties Trust should be able to continue acquiring hospitals and growing its dividend in the coming years.
A well-covered dividend
Natural gas pipeline giant Kinder Morgan pays a 6.2%-yielding dividend. The company expects to generate enough cash to cover its dividend — which it intends to increase by 3% this year — and its entire $1.3 billion expansion program with an estimated $870 million to spare. That will give it the cash to repurchase shares or enhance its already strong balance sheet.
Kinder Morgan is also using its financial flexibility to slowly pivot toward the fuels of the future. The company recently announced plans to move forward with a renewable diesel hub project in Southern California. It’s also building one in the Northern part of the state and developing several renewable natural gas production facilities in Indiana. These investments and those to follow will help fuel dividend growth in the coming years.
These already ultra-high yields have the power to go higher
EPR Properties, Enbridge, Medical Properties Trust, and Kinder Morgan stand out among dividend stocks. They offer ultra-high dividend yields that are sustainable and poised to continue growing. That makes them great stocks for income-seeking investors to buy these days.
Originally published on Fool.com
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Matthew DiLallo owns EPR Properties, Enbridge, Kinder Morgan, and Medical Properties Trust. The Motley Fool owns and recommends Enbridge and Kinder Morgan. The Motley Fool recommends EPR Properties. The Motley Fool has a disclosure policy.