Central banks around the world have kept interest rates lower to fuel economic growth. However, falling interest rates have made debt securities unattractive to conservative investors looking for stable returns.
So, in a lower interest rate environment, dividend paying stocks with high yields appear to be an attractive investment to generate regular cash flow. Let’s focus on two of those companies that pay dividends and offer high returns at current price points. It should be noted that these companies have resilient cash flows, pay and grow their dividends for a very long time, and have sustainable payout ratios.
Enbridge The (TSX: ENB) (NYSE: ENB) stock offers a high dividend yield of 6.6%, which is safe. My optimism about its payouts stems from its long history of dividend payouts. For example, Enbridge has paid dividends for over 66 consecutive years. Additionally, the energy infrastructure company has increased its annual dividend by a CAGR (compound annual growth rate) of 10% over the past 26 years.
As the Delta variant of COVID-19 continues to pose challenges for the energy industry, Enbridge’s diverse assets and contractual framework suggest the company is likely to generate strong Distributable Cash Flow (DCF) per share and could continue to increase its dividend to a decent level. pace over the next few years.
Enbridge’s $ 17 billion guaranteed capital program adds visibility to its future cash flow and will likely generate additional EBITDA to support dividend payments in the years to come. At the same time, the continued momentum in the core business, the recovery in volumes on the main grid and the growth opportunities in the renewable energy segment will likely boost its earnings and cash flow. In addition, he announced the acquisition of Moda Midstream Operating, LLC, which is expected to increase its EBITDA, DCF / share and earnings. Overall, Enbridge is one of the best investments for investors seeking stable income and high returns.
Like Enbridge, Pembina pipeline (TSX: PPL) (NYSE: PBA) is another leading security in providing energy space high efficiency and reliable payment. The Pembina pipeline offers a monthly dividend and returns 6.3% at current price levels. It has paid out $ 10.1 billion in dividends since its inception in 1997. In addition, it has increased its dividend at a CAGR of 4.9% over the past decade.
Pembina Pipeline’s dividend payments are driven by its highly contractual activities which generate strong fee-based cash flow. Its long-term contracts include a firm purchase or cost of service agreement that reduces volume risk. Additionally, its payout ratio was 72% of commission-based distributable cash flow for 2020, implying that its payouts are secure and more than hedged.
Looking ahead, I expect Pembina’s diversified and contracted assets to generate strong cash flow. Additionally, backlogs, new growth plans, as well as higher volumes and prices will likely boost its Adjusted EBITDA and support higher dividend payments.
At the end of the line
Enbridge and Pembina have a long history of paying and growing their dividends. Both of these companies have diversified assets and generate resilient cash flows that support their higher dividend payments. I think investors looking for high yields in a lower interest rate environment might consider investing in these stocks at current price levels.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a Motley Fool premium service or advisor. We are straight! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer, so we post sometimes articles that may not conform to recommendations, rankings or other content. .
Foolish contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool owns shares and recommends Enbridge. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.