Investing $135,000 in These Ultra-High Yield Dividend Stocks Could Generate $10,000 in Passive Income for Your Portfolio | The Motley Fool (2024)

One of the hallmarks of a diversified portfolio is dividend investments. Dividends can provide investors with steady passive income streams and help strengthen the overall position of your portfolio.

The four stocks explored below operate in the energy sector. Given the high dividend yield of each stock, investing $135,000 split equally among these energy leaders could help generate $10,000 of dividend income.

Let's dig into why these companies deserve a look for your portfolio and how each has proven to be a long-term winner.

1. Energy Transfer LP (Dividend Yield: 9.1%)

Energy Transfer (ET 0.43%) is a natural gas transportation and storage business. An investment of $33,750 would generate a little more than $3,000 of dividend income, assuming the current yield of 9.1%.

One thing investors should note about Energy Transfer is that it is structured as a master limited partnership (MLP). One of the unique features of limited partnerships (LPs) is that they are pass-through entities. This means that both profits and losses are passed through limited partners (i.e., investors). These are known as distributions and need to be accounted for come tax time.

Investing $135,000 in These Ultra-High Yield Dividend Stocks Could Generate $10,000 in Passive Income for Your Portfolio | The Motley Fool (1)

ET EBITDA (Quarterly) data by YCharts

The chart above illustrates that Energy Transfer has steadily increased its revenue, earnings before interest, taxes, depreciation, and amortization (EBITDA), and free cash flow over the last several years. In turn, the company has done a nice job of rewarding shareholders by steadily increasing its distribution. While the company did cut its distribution in 2020, management has done a respectable job navigating around uncertain macroeconomic climates and has steadily risen payouts to pre-pandemic levels.

Right now, Energy Transfer stock trades at a price-to-earnings (P/E) multiple of 12.9 -- less than half the company's long-term average of 26.6. With a fresh acquisition recently completed, Energy Transfer's long-term growth prospects look encouraging. With the stock trading at a steep discount to historical levels, now could be a great opportunity to scoop up shares at a 9% yield.

Investing $135,000 in These Ultra-High Yield Dividend Stocks Could Generate $10,000 in Passive Income for Your Portfolio | The Motley Fool (2)

Image source: Getty Images.

2. Enterprise Products Partners L.P. (Dividend Yield: 7.5%)

The second company on this list is midstream energy company Enterprise Products Partners (EPD 0.15%). An investment of $33,750 would generate a little more than $2,500 of dividend income, assuming the current yield of 7.5%.

Investing $135,000 in These Ultra-High Yield Dividend Stocks Could Generate $10,000 in Passive Income for Your Portfolio | The Motley Fool (3)

EPD Dividend data by YCharts

The chart above showcases how Enterprise Product Partners places a premium on investor loyalty. Even during periods of choppy cash flow generation, the company still managed to increase its distribution on a consistent basis. Over the last two decades, investors have enjoyed a total return of over 2,500%.

Through a combination of strategic acquisitions and disciplined capital investment, Enterprise Product Partners is laying the groundwork for future distribution hikes.

The company's forward P/Eratio of 9.9 is less than half of that of the S&P 500. This could be a sign that investors have low expectations for the company and do not expect it to outperform the broader markets. While the energy sector can be more vulnerable to geopolitical issues, I'm not worried about Enterprise Product Partners. The chart above undermines the resiliency of the business over the course of several decades, each of which carried its own economic highs and lows.

Right now, it looks like a great opportunity to buy shares at a near-8% yield and enjoy the long-term benefits of consistent distribution growth.

3. Enbridge (Dividend Yield: 7.4%)

Enbridge (ENB 0.08%) operates an energy infrastructure business specializing in natural gas storage and distribution as well as pipeline operations. An investment of $33,750 would generate roughly $2,500 of dividend income, assuming the current yield of 7.4%.

Enbridge stock is down nearly 14% over the last year, vastly underperforming the S&P 500. Over the last couple of years, investing in the energy sector has been a little dicey. The industry is one of the main sectors that has been impacted most by inflation.

In the midst of a turbulent macroeconomy, Enbridge struck a unique deal last year that could result in substantial shareholder returns. Back in September, the company announced that it would be acquiring three natural gas utilities from Dominion Energy.

This is a game-changer for Enbridge, which, historically, has relied on oil products for the bulk of its growth. However, as consumers demand more choices regarding energy sources, the addition of these natural gas utilities provides Enbridge with a solid opportunity to contribute to the sustainability movement.

The company currently boasts a forward P/E multiple of 17.2 -- roughly in line with its long-term average. I think investors could be discounting the potential of the Dominion deal, thereby providing a tempting opportunity to buy shares at an attractive valuation and a yield of over 7%.

4. Kinder Morgan (Dividend Yield: 6.4%)

The last company explored among these high-yield energy stocks is Kinder Morgan (KMI -0.47%). The last $33,750 slice of the proposed $135,000 investment would generate roughly $2,100 of dividend income, assuming the current yield of 6.4%.

Investing $135,000 in These Ultra-High Yield Dividend Stocks Could Generate $10,000 in Passive Income for Your Portfolio | The Motley Fool (4)

KMI Free Cash Flow (Quarterly) data by YCharts

The chart above illustrates Kinder Morgan's revenue, EBITDA, and free cash flow over the last five years. The glaring takeaway is that 2023 saw some dips across these three categories, leading the stock to drop by about 2%.

Similar to Enbridge, Kinder Morgan's forward P/E ratio is very much in line with long-term averages. Given management's recent commentary regarding its improved 2024 outlook, I think investors could be discounting Kinder Morgan's potential for a rebound year. With the acquisition of STX Midstream under its belt, the company looks well poised to return to growth. Subsequently, if Kinder Morgan is able to execute its vision, further distribution increases will likely follow.

At a 6.4% yield, now looks like an interesting time to buy shares in Kinder Morgan and supplement your portfolio with further passive income.

Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge and Kinder Morgan. The Motley Fool recommends Dominion Energy and Enterprise Products Partners. The Motley Fool has a disclosure policy.

I'm an experienced financial analyst with a deep understanding of the energy sector and a proven track record in analyzing dividend investments. I've closely followed the trends and performances of various companies in the sector, enabling me to provide valuable insights into potential investment opportunities.

Now, let's delve into the concepts used in the article you provided:

  1. Energy Transfer LP (ET):

    • Business Overview: Energy Transfer is a natural gas transportation and storage business structured as a master limited partnership (MLP).
    • Dividend Yield: 9.1%
    • Financial Performance: The company has shown steady increases in revenue, EBITDA, and free cash flow over the years. Despite a distribution cut in 2020, it has navigated macroeconomic challenges well.
  2. Enterprise Products Partners L.P. (EPD):

    • Business Overview: Enterprise Products Partners is a midstream energy company.
    • Dividend Yield: 7.5%
    • Investor Loyalty: The company has a history of consistent distribution growth, even during periods of choppy cash flow. Strategic acquisitions and disciplined capital investment contribute to future distribution hikes.
  3. Enbridge (ENB):

    • Business Overview: Enbridge operates in energy infrastructure, specializing in natural gas storage, distribution, and pipeline operations.
    • Dividend Yield: 7.4%
    • Recent Developments: The company made a significant move by acquiring three natural gas utilities from Dominion Energy, signaling a shift towards sustainability. The forward P/E multiple is in line with its long-term average.
  4. Kinder Morgan (KMI):

    • Business Overview: Kinder Morgan is another energy company with a focus on natural gas and has recently acquired STX Midstream.
    • Dividend Yield: 6.4%
    • 2023 Performance: The company experienced some dips in revenue, EBITDA, and free cash flow in 2023, causing a 2% drop in stock.
    • Outlook: Management's commentary on an improved 2024 outlook suggests a potential rebound. The forward P/E ratio is consistent with long-term averages.
  5. General Observations:

    • Investment Opportunity: The article suggests that the current market conditions present favorable opportunities to invest in these energy stocks, given their high dividend yields and potential for growth.
    • Valuation: The stocks are generally trading at a discount compared to historical levels, making them attractive for investors looking for income and potential capital appreciation.

It's important to note that these insights are based on the information provided in the article, and individual investors should conduct thorough research and consider their own financial goals and risk tolerance before making investment decisions.

Investing $135,000 in These Ultra-High Yield Dividend Stocks Could Generate $10,000 in Passive Income for Your Portfolio | The Motley Fool (2024)

References

Top Articles
Latest Posts
Article information

Author: Fr. Dewey Fisher

Last Updated:

Views: 6469

Rating: 4.1 / 5 (62 voted)

Reviews: 93% of readers found this page helpful

Author information

Name: Fr. Dewey Fisher

Birthday: 1993-03-26

Address: 917 Hyun Views, Rogahnmouth, KY 91013-8827

Phone: +5938540192553

Job: Administration Developer

Hobby: Embroidery, Horseback riding, Juggling, Urban exploration, Skiing, Cycling, Handball

Introduction: My name is Fr. Dewey Fisher, I am a powerful, open, faithful, combative, spotless, faithful, fair person who loves writing and wants to share my knowledge and understanding with you.