Whether you are looking to cover your retirement expenses or just adding some extra dollars to your retirement kitty, carefully selected dividend stocks can take you there.
It's always a good idea to increase your dividend income without taking on additional risk. Three stocks that can do precisely that are Enterprise Products Partners (EPD -0.83%), Consolidated Edison (ED -0.97%), and Chevron (CVX 1.89%).
A midstream giant
With a yield higher than 7%, Enterprise Products Partners can provide a significant boost to your retirement income. It is a diversified midstream energy company with operations in oil, gas, and NGLs. It primarily operates oil and gas pipelines, storage terminals, and import-export terminals and earns fee-based income for these services.
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The MLP has increased its distribution payments for 62 consecutive quarters. That track record is impressive considering the tough energy market environment over the last few years. Enterprise Products Partners' strong operational performance, resulting in its consistent earnings growth, is behind the company's steady distribution increases. Moreover, Enterprise Products had a distributable cash flow of 1.7 times its distributions for 2019.
What's more, Enterprise Products is known for its strong financial discipline. The company's debt-to-EBITDA ratio stood at 3.2 times at the end of 2019. A ratio below 4 is considered quite conservative for midstream MLPs. The company has a pipeline of growth projects, the equity portion of which it now funds from cash generated from operations. All in all, this is one stock you can count on for attractive distribution income over years to come.
Consolidated Edison: a top utility
Forty-five years of rising dividends is definitely a feat not many companies can achieve. While Consolidated Edison's fourth-quarter results fell marginally below expectations, its longer-term outlook remains intact.
In January, Consolidated Edison's New York utility got approval for three-year rate plans with a ROE of 8.8%. The utility expects to spend around $12 billion on growth projects over the next three years -- in line with its historical expenditure levels.
EPD Dividend Yield data by YCharts
Consolidated Edison stock looks a bit expensive compared to peers based on a PE ratio above 21. Similarly, its yield is marginally below that of utility giants Southern Company and Duke Energy. However, there are several factors that explains the company's slightly richer valuation.
Consolidated Edison's payout ratio has historically been lower than that of larger peers like Southern Company and Duke Energy. That provides it a room to increase payouts when needed. In fact, it did grow its dividends faster in the last five year period. Secondly, with a debt-to-equity ratio of 1.2 times, Consolidated Edison's leverage compares favorably with most of its utility peers.
Finally, Consolidated Edison's renewable energy operations opens longer term avenues for its growth as states aim to reduce their carbon footprints. Overall, Consolidated Edison is a must-have utility stock in your retirement portfolio that you can literally buy and forget.
An integrated energy giant
Integrated energy company Chevron has delivered dividend increases for 32 consecutive years. The stock offers a very attractive yield of more than 5%.
The company has positioned itself well to grow in the lower energy commodity price environment, which means its growing dividends will likely continue growing in the years to come. Chevron's oil equivalent production rose consecutively over the last three years. At the same time, the company continued to add to its proved reserve balances, which also increased over this period.
Chevron expects production growth of more than 3% CAGR over the next four years, assuming average Brent price of $60 per barrel. That's quite reasonable considering average Brent price of $64.4 per barrel in 2019.
However, if the current prices sustain, things may become difficult for Chevron. Notably, Chevron can cover its cash capital and exploration expenditures and dividends from cash flow from operations at $55 per barrel Brent price. That looks still better, more so with OPEC's efforts toward production cuts to stabilize prices.
Moreover, with a debt-to-capital ratio of 15.8%, Chevron's leverage is lowest among its peers. Though the stock price may remain volatile in the short-to-medium term, the company looks well-placed to continue its dividend streak.
