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When stocks plunged this spring, yields on dividend stocks shot up. But that doesn't always mean they'll be a great income investment. It could mean the company is in distress and will need to slash the dividend in the future.
That's why I dug into SEC filings, balance sheets, and my own research tools to find the best high-yield dividend stocks to add to your portfolio.
You see, these stocks pay incredibly high dividends, but I made sure they have the fundamentals, the management, and the industry growth to keep their dividend rising into the future.
Today I've got two dividend stocks for you with yields as high as 14%, and I've found them by targeting one important industry...
How to Find the Best High-Yield Dividend Stocks Today
Oil prices have recovered nicely since the madness of negative prices back in March when Saudi Arabia and Russia decided to engage in a price war just as the coronavirus swept across the globe crushing demand.
Since then, OPEC has put production cuts in place, and demand is slowly creeping back up. Despite tripling off the lows, oil is still down around 40% this year. OPEC is meeting this week and will discuss keeping production cuts in place through the summer to support prices further.
U.S. production has also declined dramatically in the face of low prices. Production in June is expected to be 10.7 million barrels per day, a decline of 17% from the 12.9 million barrels produced in March. The rig count has declined for nine weeks in a row, and a full recovery of U.S. production is not expected anytime soon.
While the recovery probably helped hold off a wave of bankruptcies among shale producers, it is unlikely we see too much more of an increase in oil prices. The demand will not be high enough to push prices significantly higher...
The world economy was weak before the coronavirus shut down a vast swath of the global economy. The post virus recovery will take a long time, so it is likely oil prices remain range-bound for an extended period.
You see, the drop in prices caused steep sell-offs in almost all energy-related securities over the past several months. The midstream segment that transports and stores oil got hit right along with producers.
And that has created a massive opportunity for these two high-yield dividend stocks...
A Master Limited Partnership That Yields 9%
Enterprise Product Partners LP (NYSE: EPD) is the best in class midstream Master Limited Partnership. Enterprise operates in four segments Pipelines and Services, Crude Oil Pipelines and Services, Natural Gas Pipelines and Services, and Petrochemical and Refined Products Services.
The company owns thousands of miles of pipelines as well as marine terminals, storage facilities, and natural gas processing facilities. As long as oil and gas need to get from the production fields to the market, Enterprise will do robust business.
Enterprise is connected with every major U.S. shale filed, every ethylene cracker, and 90% of the refineries east of the Rockies. It can also offer export facilities out of the Gulf Coast, where much of the marine export terminals are located.
Enterprise has long-term contracts with shippers that are 15 to 20 years in length. Its operations are so vast that the producers and shippers of oil and gas need to meet the contract regardless of current production to guarantee they can maintain the ability to ship their products to market.
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Enterprise Product Partners is in fantastic financial shape despite the decline in oil prices. The MLP currently has over $1.5 billion in cash available and more than $8 billion in available liquidity. Management has taken advantage of low-interest rates as well. Its $3 billion debt offering in January included 31-year notes at 3.70% and $1 billion of 40-year notes at 3.95%.
All of this adds up to a midstream energy company that can survive anything the world throws at it over the next several decades. A quicker or stronger economic recovery than most expect that creates additional demand for oil and gas will send the price of Enterprise soaring higher. In a worst-case scenario, the company has contracts in place and cash available to cover the dividend for years.
Shares of Enterprise Product Partners currently yield 9%. And investors can expect that to increase as the global economy eventually recovers.
EPD a must-own income stock, and you should anticipate looking for opportunities to buy more anytime market volatility sends the price lower.
You Can't Pass Up This 14.5% High-Yield Dividend Stock
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More adventuresome income investors might want to add some shares of MPLX LP (NYSE: MPLX).
MPLX is involved in the gathering, processing, and transportation of natural gas with most of its operations in the Appalachian area.
Initially formed by Marathon Petroleum Corp. (NYSE: MPC) back in 2019, MPLX owns assets include a network of crude oil and refined product pipelines; an inland marine business; light-product terminals; storage caverns; refinery tanks, docks, loading racks, and associated piping; and crude and light-product marine terminals.
The company also owns crude oil and natural gas gathering systems and pipelines as well as natural gas and natural gas liquids processing and fractionation facilities in key U.S. supply basins.
Thanks to the sell-off in energy-related asses, shares of MPLX currently yield 14.5%. And most importantly, I do NOT expect to see a dividend cut.
MPLX pays out just 78% of distributable cash flows and has increased the dividend for seven straight years. In addition to the dividend, management is projecting that cash flows will allow them to buy back stock as soon as 2021.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.