Investors can benefit significantly by investing in dividend-paying stocks. It enables them to start a passive income stream with as much capital as they want. Besides providing a regular inflow of cash, high-quality dividend stocks add stability to a portfolio, and offer decent capital gains over time due to their growing earnings base. Moreover, some of them offer high yields that have the ability to beat inflation.
However, it's crucial to know that companies do not guarantee dividend payments. Therefore, investors shouldn't simply chase the highest possible yield. Instead, they should look for companies with large and diversified businesses, a growing earnings stream - and a solid dividend payment history.
Energy Transfer (ET) and CTO Realty Growth (CTO) stand out for their high yields of over 8%, as well as the durability of their dividend payments. In addition, these companies have consistently grown their dividends. Let’s take a closer look at both companies to understand why these could be great high-yield dividend stocks to consider now.
Energy Transfer
Energy Transfer owns an integrated energy infrastructure business and transports natural gas (NGV23), NGLs (natural gas liquids), and crude oil (CLV23). It has 125,000 miles of pipelines and associated infrastructure across 41 states. The company is one of the largest NGL exporters in the world and has three export terminals.
Energy Transfer’s coast-to-coast asset base, predominantly fee-based core business, and well-diversified asset mix allow it to generate substantial earnings regardless of commodity cycles, and enhance its shareholders’ returns through higher dividend payments. For instance, Energy Transfer earns approximately 90% of its adjusted EBITDA from fee-based contracts with low commodity price sensitivity, enabling it to generate high-quality earnings and support its dividend payments.
Energy Transfer recently increased its quarterly cash dividend to $0.31 per share from $0.3075, and currently yields 8.77%. Moreover, it targets a 3-5% increase in its annual dividends in the coming years.
Last month, Energy Transfer announced the acquisition of Crestwood. The transaction is expected to close in the fourth quarter of 2023 and will be immediately accretive to its DCF (distributable cash flow) per share. Furthermore, Crestwood’s long-term contracts with top-class counterparties and fee-based margin business bode well for growth.
Overall, Energy Transfer is poised to benefit from volume growth and recent acquisitions. Moreover, fee-based contracts will continue to stabilize its business and payouts.
Thanks to its solid fundamentals and growing earnings base, 10 out of 11 analysts rate ET a “Strong Buy.” One analyst recommends a “Moderate Buy.” The average price target of $16.83 implies about 24% upside potential from current levels.
CTO Realty Growth
CTO Realty Growth operates as a Real Estate Investment Trust (REIT) and primarily owns a high-quality, retail-focused portfolio. Most of the company’s assets are located in higher-growth markets in the U.S., supporting its expansion.
CTO Realty has been paying dividends for 47 years, thanks to its growing income and cash flows. Moreover, it has increased dividends consistently in each of the past 12 years. Impressively, it offers a compelling yield of over 9.1%.
The company continues to invest in three multi-tenant retail properties that support its cash flows and dividend payouts. Meanwhile, its focus on monetizing assets at favorable net investment spreads will likely drive accretive earnings growth. Besides its retail-focused portfolio, CTO Realty Growth also externally manages Alpine Income Property Trust (PINE), a single-tenant net lease REIT, which meaningfully drives its cash flows and provides significant valuation upside.
Overall, its top-quality real estate portfolio, high occupancy rate (projected to be within 94-95% in 2023), investments in income-producing assets, and ability to grow same-property net operating income (NOI) bodes well for growth. CTO also has no immediate debt maturities, which will alleviate pressure on its cash flows. However, the elevated bad debt expense remains a short-term concern.
Three out of five analysts recommend a “Strong Buy” on CTO Realty Growth stock. One analyst recommends a “Moderate Buy,” and one has a “Hold” rating. Analysts’ average price target of $19.75 implies about 17% upside potential from current levels.
