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Buying dividend stocks is a no-brainer investment. They generate dividend income and have historically delivered higher total returns with less volatility than the broader market. Over the past fifty years, the average dividend stock has delivered an average annual total return of 9.2%, compared to 7.7% for an equally weighted dividend. S&P500 indexaccording to data from Ned Davis Research and Hartford Funds. Meanwhile, dividend growth stocks have delivered even higher total returns (10.2% annualized).
Kinder Morgan (NYSE: KMI) And Brookfield Renewable (NYSE: BEPC)(NYSE:BEP) are no-brainer dividend stocks to buy now. Their shares sell for less than $30 each. They can turn less than $200 into a more attractive income stream than investing in one S&P 500 index fund.
Channeling money into the pockets of investors
Kinder Morgan is one of the nation’s largest energy infrastructure companies. It owns a diversified portfolio of pipelines, processing plants, storage terminals and export facilities. These generate midstream assets terribly stable cash flow supported by government-regulated fee structures, fee-based contracts and hedging agreements. About 68% of the company’s cash flow has no price or volume risk, 27% has some variability due to volumes, and only about 5% is based on commodity prices.
The gas pipeline giant pays out a little more than half of its stable cash flow in dividends. Kinder Morgan’s dividend yield is around 5.4% at its current payout level and recent share price. At that rate, it could turn every $100 invested in stocks into an annual dividend income stream of $5.40. By comparison, the S&P 500 yields about 1.3%, implying that a $100 investment would produce about $1.30 per year in dividend income.
Kinder Morgan uses the rest of its cash flow to invest in expansion projects, buy back shares and maintain a strong balance sheet. The company currently has $5.2 billion in committed growth capital projects under construction, which should come online by the end of 2028. Projects include new gas pipelines, renewable natural gas production facilities and enhanced oil recovery projects. The company also has a strong balance sheet, giving it the flexibility to make acquisitions when opportunities arise.
These factors give the company great insight into its ability to grow its cash flow and dividends. This year marked the seventh year in a row that Kinder Morgan increased its dividend.
A dividend growth powerhouse
Brookfield Renewable is a leading global company renewable energy producer. It sells about 90% of the power it generates under long-term, fixed-price contracts. Those agreements deliver it with stable and growing cash flow (70% linked to inflation). With that money, the company pays an attractive dividend (currently about 5%).
Brookfield has increased its high-yield payout by at least 5% per year since 2011 and at a compound annual rate of 6% over the past twenty years. It plans to grow its dividend at about 5% to 9% annually over the long term.
The company must have sufficient power to realize that plan. Inflation-related interest rate increases should increase resources from operations (FFO) per share by 2% to 3% annually until at least 2028. Meanwhile other Organic growth initiatives such as margin improvement activities and development projects should increase FFO per share by 5% to 9% annually. Add to that the acquisitions and Brookfield expects to achieve growth of more than 10% FFO per share until at least 2028. The company has sufficient financial flexibility to achieve this plan thanks to growing free cash flow after dividends, a strong balance sheet and active assets capital recycling strategy.
No-brainer dividend growth stocks
Kinder Morgan and Brookfield Renewable have been increasing their high-yield dividends for several years in a row. Given their stable cash flows, strong balance sheets and visible growth profiles, these trends should continue. Therefore, they are not easy dividend stocks to buy now. They should produce growing streams of dividend income and attractive total returns as their stock prices rise with their earnings.
Should You Invest $1,000 in Kinder Morgan Now?
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners and Kinder Morgan. The Motley Fool holds and recommends positions in Brookfield Renewable and Kinder Morgan. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has one disclosure policy.
2 No-Brainer Dividend Stocks You Can Buy Right Now for Under $200 was originally published by The Motley Fool