3 High-Yield Stocks on Track to Grow Their Payouts

These companies offer highly attractive income streams.

If you like income, you’ve come to the right place. A few Fool.com contributors have highlighted some of their favorite income stocks.

What they like about this particular trio, MPLX (MPLX -0.34%), Oneok (OKE 0.05%), and Enbridge (ENB 1.18%), is that they offer high dividend yields and are on track to grow their payouts. That combination of income and growth could enable these high-yield dividend stocks to generate high total returns in the coming years.

An 8% yield backed by the best in the business

Tyler Crowe (MPLX): Energy infrastructure has consistently been one of the highest-yielding industries for decades. Moving oil and gas is much more of a volume business than a commodity price business, which ensures steady cash flows. Also, many of the companies in this industry are structured as master limited partnerships, which makes each shareholder responsible for their portion of the partnership’s taxable income. The business passes much of its cash flow to investors to cover their portion of taxes.

MPLX has emerged as one of the best in the energy infrastructure business. The company is a publicly traded subsidiary of Marathon Petroleum, and it owns much of the oil and gas infrastructure that moves oil, gas, and refined products to and from Marathon refineries.

What makes MPLX stand out among its peers is its strong rates of return, capital discipline, and generous returns to shareholders. It has simultaneously generated some of the highest returns on invested capital while keeping its leverage (defined as debt to EBITDA) lower than most.

MPLX Return on Invested Capital Chart

MPLX Return on Invested Capital data by YCharts

At the same time, its dividend growth has outpaced all of its competitors by a pretty wide margin.

MPLX Dividend Chart

MPLX Dividend data by YCharts

Investors shouldn’t expect huge increases in revenue or earnings. Oil and gas pipelines is a slow-growing business that generates lots of cash. Today, the stock has a forward dividend yield of 8.1%. There aren’t many high-yield stocks out there that match what MPLX has to offer as a business or as a stock.

The best kind of dividend growth

Jason Hall (Oneok): There are a few dividend growth stock lists that investors love — namely, the ones that are companies that have increased their dividend every single year for multiple decades. And while I own a few of those stocks, I’m here to challenge the idea of consecutive dividend growth as being a must-have before a stock is buy-worthy. The recent tales of Walgreens and 3M are great examples of when dividend-growth-can’t-stop becomes a detriment, and ends up harming shareholders.

This is a big reason I wanted to share Oneok as my pick for this topic. Since January of 2020, this midstream energy company has only increased its dividend twice. That’s right — just two increases in the past four years.

However, it also was able to navigate the Coronavirus pandemic without having to cut the payout. A boon for its shareholders, many of which may have been counting on that quarterly check to make ends meet.

Why is this notable? In short, because prior to the pandemic Oneok’s management was able to raise the payout 11 times from 2015 through 2019, while still heading into one of the most challenging periods in the modern energy industry’s history with a strong enough business and balance sheet to keep paying shareholders and operating its business.

Fast-forward to the post-pandemic period, and Oneok is back on a dividend growth cadence, after increasing its payout 2% in 2023 and 3.7% to start 2024. And while it hasn’t been a market-beating stock over the past decade, it’s been an income investor’s dream, growing its payout 148%, and generating 156% in total returns, or almost 10% a year on average. With a yield near 4.9% at recent prices and a strong, cash-flowing business, Oneok deserves consideration from investors prioritizing a high-dependable yield, and a long-term track record of growth, but with a management team that puts the needs of the business ahead of raising the payout.

Lots of fuel to continue growing

Matt DiLallo (Enbridge): Enbridge is approaching another milestone. This year should be the Canadian pipeline and utility company’s 30th in a row of increasing its dividend. That’s an impressive streak, considering the energy market’s volatility.

The company built its business to generate very stable cash flow. Enbridge pays 60% to 70% of its steady cash flow to investors in dividends. It retains the rest to help fund expansion projects. That approach provides investors with stable returns while allowing it to continue growing.

Enbridge currently has a massive backlog of expansion projects. It ended the first quarter with $25 billion Canadian ($18.3 billion) of commercially secured growth projects. That backlog gives it lots of visibility into its future earnings growth. It supports the company’s view that it can increase its adjusted EBITDA by around 3% annually through 2028. On top of that, Enbridge expects to deliver another 1% to 2% in annual earnings growth from optimizations and cost savings.

The company has the financial capacity to fund its growth with room to spare. This financial flexibility will allow it to sanction additional projects, make bolt-on acquisitions, and opportunistically repurchase shares. Those upside catalysts support its view that it should deliver 5% annual earnings growth over the next several years.

That should give Enbridge plenty of fuel to continue increasing its high-yielding dividend, which currently stands at over 7%. Combined with its growing earnings, Enbridge could have the power to continue producing double-digit average annual total returns, consistent with its long-term track record of growing shareholder value.

Jason Hall has positions in Enterprise Products Partners. Matt DiLallo has positions in 3M, Enbridge, Enterprise Products Partners, and Kinder Morgan. Tyler Crowe has positions in Enterprise Products Partners and MPLX. The Motley Fool has positions in and recommends Enbridge and Kinder Morgan. The Motley Fool recommends 3M, Enterprise Products Partners, and ONEOK. The Motley Fool has a disclosure policy.

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