Higher-yielding dividend stocks can produce a lot of passive income. However, one drawback is that a higher dividend yield can be a warning sign that the payout is at risk of a reduction.
That’s not always the case. Here are five low-risk dividend stocks with yields above 5%, which is more than triple the S&P 500‘s sub-1.5% dividend yield. Because of their lower risk profiles, you can confidently buy these higher-yielding dividend stocks for passive income right now.
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Enterprise Products Partners
Enterprise Products Partners (EPD -1.73%) currently yields 6.7%. The master limited partnership (MLP), which sends investors a Schedule K-1 Federal Tax Form each year, backs that payout with a very stable cash flow profile and strong balance sheet. The midstream energy company’s integrated network of pipelines, processing plants, storage terminals, and export facilities generates predictable cash flow backed primarily by long-term, fixed-rate contracts and government-regulated rate structures. The company produced enough distributable cash flow to cover its high-yielding payout by a comfy 1.7 times in the first quarter. Enterprise also has the strongest balance sheet in the energy midstream sector.
The MLP has proved the durability of its high-yielding distribution over the decades by increasing it for 26 straight years. That streak seems likely to continue. Enterprise currently has $7.6 billion of major capital projects on track to enter commercial service through the end of next year. The incremental free cash flow from those projects will give the company even more fuel to continue increasing its high-yielding payout.
Enbridge
Enbridge (ENB -1.56%) currently yields 5.8%. The Canadian pipeline and utility company produces stable cash flow to backstop that payout. Predictable cost-of-service agreements and long-term, fixed-fee contracts lock in 98% of its annual earnings. Its earnings are so predictable that Enbridge has achieved its annual financial guidance for 19 years in a row.
Enbridge pays out 60% to 70% of its stable cash flow in dividends, retaining the rest to help fund expansion projects. Enbridge also has a strong investment-grade balance sheet with a leverage ratio trending toward the lower end of its target range. That gives it the flexibility to invest billions of dollars every year into expanding its oil pipelines, natural gas pipelines, natural gas utilities, and renewable power businesses. This growth gives it the fuel to increase its dividend, which Enbridge has done for 30 straight years.
NNN REIT
NNN REIT (NNN -1.04%) has a 5.5% dividend yield. The REIT focuses on investing in single-tenant retail properties secured by long-term, triple-net (NNN) leases. Those leases provide it with stable cash flow to pay dividends because tenants cover all property operating expenses, including routine maintenance, real estate taxes, and building insurance.
The REIT has a conservative dividend payout ratio and balance sheet. It expects to produce $200 million in post-dividend free cash flow this year and has a sector-leading 11.6-year weighted average debt maturity. Those features give it lots of capacity to invest in new income-generating retail properties. It primarily buys properties through sale-leaseback transactions with its existing tenants. This strategy has steadily grown its income, enabling NNN REIT to raise its dividend payment for 35 straight years. Only two other REITs and fewer than 80 publicly traded companies have reached that milestone.
Verizon
Verizon (VZ -1.24%) has a 6.3% dividend yield. The mobile and broadband giant produces lots of recurring cash flow as customers pay their bills. Last year, Verizon generated $36.9 billion in cash flow from operations. That was enough money to cover its capital expenditures to maintain and expand its fiber and 5G networks, which accounted for $17.1 billion, and its dividend payment, accounting for $11.2 billion, leaving $8.6 billion in excess free cash flow to spare. That surplus enabled Verizon to strengthen its already rock-solid balance sheet.
Verizon is also buying Frontier Communications in a $20 billion deal to bolster its fiber network, and its overall growth investments in 5G and fiber should support growing cash flows in the future. That should enable the company to continue increasing its high-yielding dividend. Last year, Verizon raised its payout for the 18th year in a row, the longest current streak in the U.S. telecom sector.
Vici Properties
Vici Properties (VICI 0.06%) has a 5.4% dividend yield. The REIT backs its payout with a high-quality real estate portfolio. Vici Properties invests in market-leading gaming, hospitality, wellness, entertainment, and leisure destinations. It leases these properties back to operating tenants under very long-term NNN leases, with a 40.4-year weighted average lease term remaining.
The REIT pays out 75% of its stable income in dividends. It also has a rock-solid investment-grade balance sheet. These features give it the financial flexibility to invest in additional income-generating experiential real estate. Vici’s growing portfolio has enabled it to steadily increase its dividend. It has raised its dividend in all seven years since its formation, growing its payout at a 7.4% compound annual rate, which leads its NNN lease peers.
High-quality, high-yielding dividend stocks
Enterprise Products Partners, Enbridge, NNN REIT, Verizon, and Vici Properties generate stable cash flow, which helps support their more than 5%-yielding payouts. These companies also have strong financial profiles, which allows them to invest in growing their businesses. That growth has supported steady dividend increases, which seems likely to continue. This combination of yield, financial strength, and growth is why you can buy any one of these high-yielding dividend stocks for passive income without hesitation right now.
Matt DiLallo has positions in Enbridge, Enterprise Products Partners, Verizon Communications, and Vici Properties. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Enterprise Products Partners, Verizon Communications, and Vici Properties. The Motley Fool has a disclosure policy.