The stock market has been on a roll over the past year, hitting several new all-time highs. This could make it easy to forget the difficult times of the past.
Unfortunately, the market will eventually weather more storms in the future. For this reason, investors should look for ways to protect their portfolios in anticipation of future downturns. Enterprise Product Partners (NYSE:EPD), Brookfield Infrastructure (NYSE:BIP)(NYSE:BIPC)And Brookfield Renewable Energy (NYSE:BEP) (NYSE:BEPC) stand out from a few Fool.com contributors for their resilient dividends. Here’s why they think investors should buy these high-quality products, high dividend stocks before the next market downturn to add a safety net to their portfolio.
The world needs business
Ruben Gregg Brewer (Enterprise Product Partners): The key story for Enterprise Products Partners is that it owns a large set of energy infrastructure in North America. The list of assets includes pipelines, storage, transportation and processing facilities. The midstream sector essentially connects the upstream (production) of the energy sector to the downstream (chemicals and refining) and to the rest of the world. The North American energy sector would not function without companies like Enterprise.
The bottom line for investors, however, is that Enterprise is basically just a toll taker, charging fees for the use of its vital energy infrastructure. Thus, the demand for energy is greater than the price of raw materials flowing through the master limited partnership (MLP) system. As energy is the lifeblood of the modern world, demand tends to remain robust even when energy prices are low or economic activity slows. This is how Enterprise has managed to increase its distributions for 25 consecutive years despite the volatility inherent in energy prices.
Now add in an investment grade balance sheet and the fact that distributable cash flow covers the distribution by 1.7 times. There is plenty of room for bad news here before a distribution cut is considered. And here’s the best part: the distribution yield is a whopping 7.2%. Of course, yield will likely account for the lion’s share of investors’ returns, but if you’re trying to maximize the income your portfolio generates (in both good and bad markets), this shouldn’t be a problem for you.
Built for durability
Matt DiLallo (Brookfield Infrastructure): Brookfield Infrastructure produces very stable cash flows. The company operates a globally diversified portfolio of critical infrastructure businesses. Around 90% of its cash flow comes from long-term contracts or regulated frameworks with an average remaining life of 10 years. Meanwhile, 70% of its cash flow has no volume or price exposure, while another 20% only has volume risk. Finally, 85% of its income is either indexed has or protected from inflation. These features help protect Brookfield’s profits from future storms.
The company further strengthens its business in the face of future downturns by maintaining a strong financial position. Brookfield has an investment-grade balance sheet consisting primarily of long-term, fixed-rate debt. It also has abundant liquidity, which it constantly strengthens through strategies capital recycling. This strategy promotes growth while preserving financial security.
Brookfield pays investors 60-70% of its stable cash flow via a dividend yielding more than 4.5%. The company plans to increase its high-yield distributions by 5% to 9% annually. It has great visibility on its future growth. The company sees a trio of organic factors (increasing inflation-indexed rates, volume growth as the global economy grows and its big backlog of investment projects) generating annual growth of 6 to 9% in its funds from operations (FFO) per share.
The infrastructure company believes it can increase its FFO growth rate above 10% per share every year by making acquisitions financed through its capital recycling strategy. While she can complete value-generating deals in any market environment, she has a knack for capitalizing on market downturns to secure exciting investment opportunities.
Brookfield Infrastructure built a financial system fortress to withstand market storms. As a result, it should have no problem providing investors with a growing stream of dividend income in the future, regardless of the state of the global economy.
This high-yield payout is expected to increase steadily
Néha Chamaria (Brookfield Renewable Energy): Brookfield Renewable (Brookfield Infrastructure’s clean energy-focused sibling) is popular among income investors for two reasons: it offers a high dividend yield and supports its yield with consistent dividend growth. The renewable energy giant has not only paid a steady dividend since its inception in 2011, but has also increased its payout every year since. While units of the partnership yield 5%, shares of the company – which was formed in 2019 – yield 4.5%.
Brookfield Renewable’s dividends are profitable due to the company’s business model, growth goals, and commitment to shareholders. Brookfield Renewable is one of the world’s largest publicly traded renewable energy companies, with an extensive portfolio of assets spanning 20 countries. The company generates almost 90% of its cash flow from long-term contracts, which simply means that it can generate stable cash flow even in difficult times. This explains why Brookfield Renewable can also regularly increase its dividends and provide investors with a reliable source of passive income at any time.
To give some numbers, Brookfield Renewable plans to increase its funds from operations per unit by 10% per year between 2023 and 2028 and its annual dividend by 5% to 9% over the long term. If the company can achieve high-single-digit percentage dividend growth and maintain a dividend yield of over 4%, investors can achieve double-digit annualized total returns from the stock. This makes Brookfield Renewable one of the top dividend stocks to buy nowespecially if you are looking to add stocks that can protect your portfolio from future shocks.
Should you invest $1,000 in Enterprise Product Partners right now?
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Matt DiLallo holds positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Brookfield Renewable, Brookfield Renewable Partners and Enterprise Products Partners. Néha Chamaria has no position in any of the stocks mentioned. Ruben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions with and recommends Brookfield Renewable. The Motley Fool recommends Brookfield Infrastructure Partners, Brookfield Renewable Partners and Enterprise Products Partners. The Mad Motley has a disclosure policy.
3 High Dividend Stocks to Buy in June to Protect Your Portfolio from Future Storms was originally published by The Motley Fool
