High dividend yields are generally associated with high risks. That does not, however, mean that you need to avoid high-yield stocks altogether. Dividend investors should carefully consider the risks associated with any stock before falling for the allure of its juicy yield.
Here are five great dividend stocks with yields higher than 6% to consider buying right now.
1. Enbridge
With a 6.8% dividend yield, Canadian pipeline stock Enbridge (NYSE:ENB) offers an attractive opportunity for dividend investors. The company transports and stores oil, liquids, and natural gas. Its liquids operations account for a little more than half of its earnings, while natural gas and other midstream operations make up its remaining earnings.
Enbridge’s liquids pipelines are strategically located, providing it with resilient cash flows even in volatile energy markets. At the same time, the company’s gas operations are largely regulated, which again add to its earnings resilience. Regulators set tariff rates based on cost-of-service that allows the pipeline operator to recover its costs, with an allowable return over those costs — similar to utilities. This ensures stable cash flow to the owner of the infrastructure in question.
Enbridge has increased its dividend for 26 straight years and its upcoming projects will help fuel its dividend growth in future, too. A key risk to consider relates to opposition of the company’s pipeline projects, including its key Line 3 and Line 5 replacement projects, from environmental groups and local governments. This could add to projects’ costs, though the company has successfully navigated through such hurdles in the past.
2. MPLX
MPLX (NYSE:MPLX) stock currently sports a gigantic yield of 9.2%. Still, it is manageable for the company compared to a more than 14% yield that its stock was trading at a year ago. A key risk that MPLX faces is its dependence on its parent Marathon Petroleum (NYSE:MPC), which accounts for more than half of MPLX’s revenue. As the demand for refined products cratered last year, refiners got severely impacted. Marathon, too, was forced to idle two of its refineries in response. This concerned MPLX investors. MPLX also wrote off $3.4 billion in impairment charges in the first quarter of 2020, which further hurt its stock’s price.
However, things are in a far better shape now for MPLX as well as parent Marathon Petroleum. This has supported MPLX’s stock price, thereby lowering its yield. In the first quarter, MPLX reported distributable cash flow of $1.1 billion, 5% higher than the year-ago quarter. The distributable cash flow was 1.56 times the amount MPLX paid as distributions, providing it a strong cushion should things go south. MPLX’s improved financials and better market conditions get reflected in the stock’s rise this year. Overall, MPLX stock’s high yield looks safe for now, but it is important to keep an eye on risks in this one.
3. ONEOK
At a yield of 6.5%, ONEOK (NYSE:OKE) stock offers another great option for income investors. The pipeline operator reported robust performance in the first quarter with a 24% EBITDA growth over the year-ago quarter. Roughly 90% of the company’s earnings are fee-based, lending relative stability to its earnings. ONEOK’s gas gathering and processing operations expose it to commodity prices, but the exposure is limited.
ONEOK’s distributable cash flow in the first quarter was 1.59 times the amount it paid in dividends. Higher EBITDA also helped improve ONEOK’s debt-to-EBITDA ratio for the quarter. Its net debt-to-EBITDA ratio on an annualized run rate basis was nearly four for the first quarter. Overall, ONEOK looks well placed to continue paying its juicy dividend in the years to come.
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