Investing in growth stocks can be beneficial in the long run, but it also carries significant risks. Growth stocks are shares of companies that are still evolving. The underlying business may or may not be successful in the long term. On the other hand, dividend stocks offer safety and predictability in a volatile market by paying regular dividends, typically either monthly or quarterly.
These regular payouts can be especially beneficial for those investors seeking passive income. Furthermore, this income stream is usually more predictable than capital gains from stock price appreciation. Here are four high-yield dividend stocks that may appeal to investors right now.
Enbridge: Dividend Yield of 6.7%
Enbridge (ENB), based in Canada, is an energy infrastructure company, with a key role in energy transportation and distribution. It operates a vast network of pipelines that transport crude oil (CLV24), natural gas (NGV24), and natural gas liquids (NGLs) throughout the U.S. and Canada. The company is also involved in renewable energy projects, such as wind and solar power, positioning itself as a key player in the transition to cleaner energy sources.
Valued at $86.1 billion, Enbridge stock has gained 12.2% year-to-date, outperforming the S&P 500 Index’s ($SPX) gain of 19.6%.
One of the most appealing aspects of Enbridge stock is its dividend. Enbridge has a 6.6% forward dividend yield, which is significantly higher than the energy sector's average yield of 4.2%.
In its most recent second quarter, adjusted earnings of C$1.2 billion were lower than C$1.4 billion in the previous year's quarter. However, distributable cash flow (DCF), which the company uses to pay dividends, rose 3% to C$2.9 billion.
Management anticipates a DCF of approximately C$11 billion to C$11.8 billion, compared to C$11.2 billion in 2023. Nonetheless, Enbridge intends to keep its DCF payout ratio at 65% in 2024.
Enbridge has a history of expanding through acquisitions, acquiring valuable infrastructure and assets for its portfolio. Its acquisition strategy has helped the company grow its market share, diversify its operations, and strengthen its presence in key markets. During the quarter, it completed the acquisition of Questar Gas Company and Wexpro from Dominion Energy (D) for $4.3 billion.
On the downside, these strategic acquisitions are putting pressure on the company's balance sheet. Its debt-to-equity ratio is high, at 1.31, indicating a heavy reliance on debt. However, given its diverse business segments and strategic acquisitions, which it expects to be accretive to cash flows and earnings, the company may eventually be able to repay the debt.
Overall, Wall Street rates Enbridge stock as a "moderate buy.” Of the 15 analysts covering the stock, six recommend a "strong buy,” two recommend a "moderate buy," five rate it a "hold,” and two suggest a “strong sell.” The stock has surpassed its average analyst target price of $40.07. Its high price target of $44.85 represents an upside potential of about 11% over the next 12 months.
Kinder Morgan: Dividend Yield of 5.3%
Kinder Morgan (KMI) is one of North America's largest energy infrastructure companies, operating an extensive network of pipelines and storage facilities that transport and store natural gas, refined petroleum products, crude oil, carbon dioxide, and other products.
Valued at $47.9 billion, Kinder Morgan stock has gained 23.2% year-to-date, compared to the overall market.
The majority of Kinder Morgan's revenue comes from long-term, fee-based contracts, which provide predictable cash flows that are largely insulated from commodity price fluctuations. This makes it a dependable passive income-generating stock.
Kinder Morgan's dividend yield of 5.3% is higher than the energy sector average of 4.2%. The company has committed to returning capital to shareholders, and has raised dividends for the past eight years. Kinder Morgan's 91% payout ratio, which indicates how much of the company's earnings it intends to distribute as dividends to shareholders, raises concerns about the dividend's long-term sustainability.
Nonetheless, the company is well-positioned to benefit from the ongoing transition to cleaner energy, as natural gas is more effective than coal and oil at lowering carbon emissions. Analysts forecast a 12.4% increase in earnings to $1.19 per share for 2024.
Overall, Wall Street rates KMI stock as a "moderate buy.” Of the 19 analysts covering the stock, six recommend a "strong buy,” one recommends a "moderate buy," and 12 rate it a “hold.” KMI's average analyst target price of $22.44 suggests the stock can climb 2.9% from current levels. Its high price target of $25 represents an upside potential of 14.7% over the next 12 months.
AT&T: Dividend Yield of 5.2%
AT&T (T) is one of the world's largest telecommunications companies, providing a wide range of services such as wireless, broadband, and pay TV. With the acquisition of Time Warner, the company has gradually expanded into digital entertainment.
Valued at $153.1 billion, AT&T stock has gained 28.3% YTD, compared to the broader market's gain.
Communications remains AT&T's core business, generating the majority of its revenue and earnings from offering wireless and wireline services to both consumers and businesses.
AT&T pays an attractive forward dividend yield of 5.2%, which is significantly higher than the communications sector average of 2.6%. Its forward payout ratio of 48.7% indicates that its dividend is sustainable and has room for growth.
AT&T generated $4.6 billion in free cash flow (FCF) in the quarter. Furthermore, it expects to generate FCF of between $17 billion and $18 billion for the entire year. AT&T's ability to sustain dividend payouts, in the long run, will be dependent on the successful execution of its strategic plans and continued free cash flow generation.
Analysts expect AT&T's earnings to fall 9.3% to $2.19 in 2024, then rise 3.5% to $2.26 in 2025. By comparison, management expects adjusted earnings to be between $2.15 and $2.25 in 2024.
Overall, Wall Street rates AT&T stock as a "moderate buy.” Of the 25 analysts covering the stock, 11 recommend a "strong buy,” one recommends a "moderate buy," 12 rate it a "hold,” and one suggests a “strong sell.” As of writing, the stock is trading close to its average analyst target price of $21.76. Its high price target of $29 represents an upside potential of 34.9% over the next 12 months.
Oneok: Dividend Yield of 4.2%
Oneok (OKE) is a top midstream energy company. It is responsible for gathering, processing, storing, and transporting natural gas and NGLs.
Valued at $54.7 billion, ONEOK’s stock is up 34.5% YTD, outperforming the overall market.
In its second quarter, net income stood at $780 million, with earnings per share (EPS) at $1.33, higher than $1.04 in the year-ago quarter. Oneok's forward dividend yield of 4.2% is consistent with the energy sector average.
Oneok's payout ratio of 67.1% appears to be sustainable if the company can increase earnings and generate positive free cash flow. The company generated $1.03 billion in FCF in the second quarter.
For the rest of the year, management anticipates "favorable market fundamentals, strong performance across our operations, and additional opportunities ahead." Analysts predict an 8% drop in earnings in 2024, followed by a 13.4% increase in 2025.
Overall, Wall Street rates OKE stock as a "moderate buy.” Of the 17 analysts covering the stock, 10 recommend a "strong buy,” one recommends a "moderate buy," and six rate it a “hold.” The stock has surpassed its average analyst target price of $93.19. Its high price target of $111 represents an upside potential of 18.1% over the next 12 months.
