You can always find high-yield stocks in any market environment. But as October gets underway and the market is hovering near all-time highs, you'll want to make sure the high-yield stocks you buy are financially strong and reliable.
That's what you'll get with midstream giant Enbridge(NYSE: ENB), Dividend King utility Black Hills(NYSE: BKH), and integrated energy giant TotalEnergies(NYSE: TTE). Here's a quick look at each of these high-yield stocks.
1. Enbridge is focused on reliable cash flow
Enbridge's core business -- operating oil and natural gas pipelines -- is a toll-taking operation. The price of the commodities flowing through its vast North American midstream energy infrastructure is less important than demand because customers pay fees for the use of the assets. In addition to that, the company owns a collection of natural gas utility businesses.
These regulated assets aren't glamorous, but they are monopolies in the areas they serve and generate steady (government-controlled) cash flow over time. And the icing on the cake is Enbridge's small renewable power division, which is contract driven, but shows that management is trying to change with the world as clean energy grows in importance.
Add an investment-grade-rated balance sheet to the stable of reliable businesses, and you can see the appeal Enbridge might have for investors. But the really exciting part of the story is the dividend. The yield is 6.6%, compared to an energy industry average of around 3.2%, using the Energy Select Sector SPDR ETF as a proxy. The dividend has been increased annually for 29 consecutive years.
2. Black Hills is a Dividend King
Even if you watch the utility sector, you may have never heard of Black Hills, due to its modest size (its market cap is just around $4 billion). But this tiny utility has a pretty attractive business. It operates in regions of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming.
The areas where it operates are seeing population growth that's around three times higher than the growth of the overall U.S. population. More people means more customers for a regulated utility, and that usually translates into more revenue and higher earnings. Black Hills also has an investment-grade-rated balance sheet.
The real reason why Black Hills stands out, however, is its dividend. This small utility has increased its dividend every year for 54 consecutive years, which is one of the longest streaks in the utility sector. And that makes Black Hills a highly elite Dividend King.
The dividend yield is an attractive 4.2%, which is above the utility average of 2.9%, using the Utilities Select Sector SPDR ETF as an industry proxy.
3. TotalEnergies has one eye on the clean energy future
TotalEnergies is a globally diversified integrated energy giant, with operations that span from oil and natural gas production to energy transportation to chemicals and refining. It competes with an elite group of companies. However, there's one factor that really sets it apart -- electricity.
While many of the company's peers have either stuck to oil and natural gas or made half-hearted efforts to diversify into clean energy, TotalEnergies now generates roughly 10% of its adjusted net income from its electricity and clean-energy-focused integrated power division.
For investors who believe carbon fuels will remain important for decades but recognize that clean energy is ascending, TotalEnergies is a great way to benefit from both trends. And it offers a generous 5.3% dividend yield (well above the energy average of 3.2% noted above).
As for dividend growth, it doesn't stand up to some of its peers or the other two stocks on this list. But when oil prices fell in the early days of the coronavirus pandemic, European peers BP and Shell cut their dividends while highlighting plans to shift toward clean energy. TotalEnergies stood by its dividend while announcing the same shift.
That's an important statement about the company's commitment to income-minded shareholders. Just remember that, as an energy producer, TotalEnergies' top and bottom lines can be volatile at times.
Look beyond the yield
There's no question that income investors will find the dividend yield to be an important metric. But it isn't the only fact you should consider about a company, particularly when the stock market is near all-time highs. If you want attractive income streams and good businesses in October, you'll want to look into Enbridge, Black Hills, and TotalEnergies.
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Reuben Gregg Brewer has positions in Black Hills, Enbridge, and TotalEnergies. The Motley Fool has positions in and recommends BP and Enbridge. The Motley Fool has a disclosure policy.
