Investing in high-yield stocks can be a solid strategy for those aiming to balance income and growth over the long term. These high-yield stocks offer several advantages that can significantly enhance an investor’s portfolio. For example, dividends from high-yield stocks provide a reliable stream of income, which can be particularly appealing in volatile markets. Additionally, this income stream reduces the payback period of the investment, offering quicker returns on capital.
A high yield and growing dividend acts as a hedge against inflation, helping to preserve purchasing power over time. This makes high-yield stocks valuable to any investment strategy focused on long-term wealth creation.
Considering these factors, Ares Capital Corporation (ARCC), Enterprise Products Partners (EPD), and Energy Transfer (ET) are three stocks that emerge as notable options for income investors seeking well-protected, high yields in 2024. Moreover, these stocks are analysts’ favorites, with all three “strong buy”-rated on Wall Street.
Let’s take a closer look at all three stocks.
#1. Ares Capital Corporation
Ares Capital Corporation (ARCC) is a compelling investment for investors seeking high-yield stocks. It is a leading business development company specializing in direct loans and corporate investments to private middle-market companies. ARCC's highly diversified portfolio and strategic focus on defensively positioned companies in less cyclical industries enables the company to consistently generate strong core earnings, which cover its dividend payouts.
Ares Capital has demonstrated consistency and reliability in its dividend policy. The company has paid, maintained, and increased its dividend for 14 years. Moreover, it offers a high yield of about 9%.
Looking to the future, Ares Capital is well-positioned to capitalize on significant growth opportunities. The demand for alternative funding sources among middle-market companies remains robust, driven by the scarcity of market participants and stringent regulatory constraints. This environment creates ample opportunities for growth for ARCC and positions it well to enhance its shareholders’ returns through higher dividend payments.
Echoing similar sentiments, most analysts providing recommendations on Ares Capital stock maintain a bullish outlook. For instance, out of the 13 analysts covering ARCC, eight have a “strong buy” recommendation, three recommend a “moderate buy,” and two suggest a "hold.”
Ares Capital's average price target is $21.81, roughly in line with its current trading price.
#2. Enterprise Products Partners
Enterprise Products Partners (EPD) is considered a solid dividend stock due to the reliability of its payouts, high yield, strong financials, and resilient business model. The company operates in the midstream segment of the energy sector, which includes the transportation, storage, and processing of various commodities, including natural gas (NGN24) and crude oil (CLQ24). This energy infrastructure segment is relatively less sensitive to commodity price fluctuations, adding a layer of support to its cash flows and dividend payments.
Enterprise Products owns valuable infrastructure assets, including pipelines and storage facilities, which are critical to the transportation and storage of hydrocarbons. These assets are supported by long-term contracts and fee-based revenues, enabling the company to generate reliable and growing earnings.
Thanks to solid earnings base, Enterprise Products increased its dividends for 25 consecutive years. Moreover, its dividends increased at a CAGR of 7% during the same period.
EPD's ongoing expansion projects and focus on strategic acquisitions position it well to return higher cash to its shareholders.
Analysts are mostly optimistic about Enterprise Products stock. Among 17 analysts covering EPD, 13 recommend a “strong buy,” two analysts suggest “Moderate Buy,” and two maintain a “Hold.”
The average price target for Enterprise Products Partners is $32.94, which reflects about 15.5% potential upside from the current trading price. Moreover, it offers a high yield of over 7.1%.
#3. Energy Transfer
Energy Transfer (ET) is a leading energy infrastructure company that transports and stores crude, natural gas, and natural gas liquids (NGLs). Its holdings in major production basins and demand hubs across the United States, along with its strategic acquisitions, position it well to capitalize on energy demand and enhance shareholders’ value through higher dividend payments.
The company’s business model is highly concentrated on fee-based contracts, which account for the lion’s share of its earnings. These fee-based contracts significantly reduce the company’s exposure to commodity price volatility. Notably, approximately 90% of Energy Transfer’s EBITDA is generated through these contractual arrangements, ensuring a steady stream of high-quality earnings that cover its payouts.
Energy Transfer pays a quarterly dividend of $0.3175 per share, which equates to a yield of 8.1%. Further, the energy infrastructure company plans to increase its dividend by 3-5% annually.
The company’s diversified asset portfolio, strong customer base, higher mix of fee-based revenue streams, organic project expansion, and accretive acquisitions will likely enable it to generate solid earnings and cash flows. This implies that Energy Transfer is well-positioned to pay and increase its dividends in the upcoming years.
Thirteen out of 15 analysts rate ET a “strong buy.” One analyst has a “moderate buy,” and one suggests “hold.”
The average price target of $18.69 implies about 20.4% upside potential from current levels.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
