Income investors value reliability and consistency, as well as above-average income yields. Some stocks provide a combination of these factors, such as high-yield 2022 Dividend Champions — stocks that have raised their payouts for at least 25 years in a row.
These companies have proven that they can reasonably manage temporary downturns, including recessions and the recent pandemic. Moreover, they can maintain their dividend payouts even during such harsh times, making them valuable for those looking for a low-risk income stream wanting to live off dividends. This article will highlight 3 of the highest yield 2022 Dividend Champions.
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3 Highest Yield Dividend Champions in 2022
1: Enterprise Products Partners
Enterprise Products Partners (EPD) is a major American energy infrastructure/midstream company. It operates a vast network of assets such as pipelines, storage facilities, and so on that are needed to transport energy and energy products to consumers and industrial areas.
Enterprise Products Partners is a high-quality midstream company. It combines a strong management team, a healthy balance sheet with ample liquidity, conservative leverage, and a strong track record. At current prices, EPD offers a well-above-average dividend yield of 7.0%, despite ample share price gains over the last year.
The dividend is well-covered, as the payout ratio is around 60% relative to the distributable cash flows that the company generates. In addition, maintenance capital expenditures are already accounted for when looking at distributable cash flows, so those cash flows are what is actually available to management for shareholder returns, growth spending, etc.
Enterprise Products is not really exposed to commodity price movements as an infrastructure player. It does not see its profits rise a lot when natural gas and oil are expensive, but it also does not see its profits fall when commodity prices decline. Most of its revenue is locked in via fee-based contracts with energy producers, explaining EPD’s strong recession performance.
In fact, even during the worst times of the recent pandemic, EPD remained highly profitable and continued to generate vast cash flows, while oil producers and refiners that are more leveraged to underlying demand and prices for these commodities lost money. From a risk perspective, energy midstream names are thus desirable compared to more volatile producers. And EPD, as an above-average, diversified energy midstream player, is an excellent choice for those looking for a low-risk option with an attractive yield.
Enbridge (ENB) is another energy midstream company. It owns and operates major pipelines connecting oil fields and consumers in the US and Canada (and some pipes between these two countries). Enbridge also owns some renewable energy assets, such as offshore wind parks in Europe’s the North Sea.
Enbridge has, like Enterprise Products Partners, a resilient business model. Most of its revenues and cash flows are locked in through fee-based contracts. So while oil and natural gas producers saw their profits melt away during the pandemic, Enbridge actually was able to grow its cash flow per share to new record levels in 2020 and 2021, proving the excellent performance of the underlying business during times of crisis.
Enbridge targets 5% – 7% annual cash flow per share growth going forward. In the past, the company has performed better than that, which allowed Enbridge to raise its dividend at an attractive rate of 9% annually over the last three years. In the future, dividend growth will likely be somewhat lower, more in line with Enbridge’s cash flow per share growth.
If Enbridge were to hit the lower end of its growth goal, 5%, its shares could be a pretty attractive investment, thanks to an above-average initial dividend yield of 5.9%. In fact, even if growth comes in at just 2.5% a year, i.e., at half the lower end of guidance, annual returns could still be in the 8% range, thanks to the solid total return boost from Enbridge’s dividend.
Today shares trade for around 11X cash flow. That’s not the lowest valuation in the energy infrastructure space, but thanks to a strong track record and a compelling recession performance, Enbridge should be worth that or more easily. In addition, since Enbridge continues to invest in its renewables portfolio, its shares might eventually be seen as somewhat of an ESG-friendly investment. This view could potentially lead to a multiple rerating, which could positively impact total returns. But even without that, total returns in the 8%+ range seem pretty likely and make ENB stock a compelling investment choice.
3: Universal Corporation
Universal Corporation (UVV) is a leading leaf tobacco trader. Its business consists of purchasing leaf tobacco from farmers, with the tobacco then being processed and sold to cigarette and cigar manufacturers around the world. Unfortunately, this business isn’t a high-growth business, as cigarette consumption is declining in many major markets, including the United States.
This trend has been in place for quite some time (several decades in the US, for example). And yet, Universal Corporation has increased its dividend for 50 years in a row, including during the Great Recession and the recent pandemic. In addition, the company served a major ~40% dividend increase in 2019, although dividend growth has slowed to just 1% – 2% in the following years.
Still, the fact that the company was growing its dividend during the pandemic is positive, of course. At current prices, Universal Corporation offers a dividend yield of about 5.3%, which is one of the highest yields available from the Dividend Champions group.
UVV Growth and Valuation
Universal Corporation has not grown its earnings-per-share over the last decade. According to Portfolio Insight*, the EPS growth rate was (-3.13%) in the past 5-years and (-5.03%) in the past decade. Due to the growth outlook for the industry, that will likely remain the case in the future as well. Still, with some money being used for share repurchases, we forecast that there will be at least some growth, although likely only in the low single digits range.
Universal Corporation seems relatively fairly valued at current valuations, trading for around 13X net profits. However, its total return outlook is weaker than that of Enbridge and Enterprise Products Partners, as is its yield. That being said, we believe that Universal Corporation could still deliver total returns in the 6% – 7% range in the coming years. For a company that operates a recession-resilient business that is not strongly correlated to most other equities, that’s not a bad return. However, we would prefer to buy below fair value.
Disclosure: Members of the Sure Dividend Team are long some of the stocks mentioned.
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Josh Arnold has been covering financial markets for ten years, using a combination of technical and fundamental analysis to identify potential winners (and losers) early, particularly when it comes to growth stocks. He writes extensively on Seeking Alpha and is also a member of the Sure Dividend team.