Dividend-focused investors know how awesome it is to get paid for the financial risks they take on by buying shares. They get cash from their investment while keeping their stocks, which means that if their companies pay another dividend, they get paid again. For anyone relying on their portfolio to cover their costs, dividends are a very tempting and potentially rewarding feature to seek out.
Still, each company's dividend is different, and some are better supported than others. As a result, savvy investors like companies whose dividends are covered by cash flow and have the potential to grow over time. With that in mind, if you like dividends, you should love these three stocks.
1. A business critical to keeping America energized and moving
Enbridge (NYSE: ENB) is North America's largest energy infrastructure company. It operates over 17,000 miles of crude oil and liquids pipelines in North America, along with over 23,000 miles of pipelines that carry natural gas. Oil and natural gas are critical to transportation, energy generation, and manufacturing, and they are predicted to be important commodities for decades to come.
As a result, moving those commodities from where they're extracted to where they're processed and consumed is a very important business. As the biggest such company on the continent, Enbridge is well positioned to thrive by transporting that stuff around.
It currently offers investors a yield just above 7%, and it has managed to increase its dividend for 26 consecutive years. That combination of a strong payout and consistent dividend growth is a testament to just how critical its business is.
Do note that Enbridge is based in Canada. That means U.S.-based investors will see their dividends fluctuate every quarter based on changes in the exchange rate between the U.S. dollar and the Canadian dollar. It also means that U.S.-based investors will face a withholding tax on their Enbridge dividends, unless they own those shares inside a qualified retirement plan like an IRA.
2. A hard money lender with no debt of its own
One of the biggest structural problems with the money lending business is that most banks and other lenders have debts of their own. As a result, when loans start going bad, it creates a problem that can cascade into a major catastrophe throughout the economy if its own reserves are not high enough.
That's what makes Broadmark Realty Capital (NYSE: BRMK) an interesting business to consider. A hard money construction focused lender, it steps in to fill gaps that traditional lenders won't. Although that is a risky business, Broadmark Realty has no debt of its own on its balance sheet. That means it won't be forced into a cascading failure if too many of its projects go bad.
The company also averages a 61% loan-to-value ratio when it originates loans. That means that if it does have to repossess on a project, it has a strong chance of extracting enough value to still wind up whole.
Broadmark Realty is structured as a real estate investment trust, which means that as long as it is profitable, it has to pay out at least 90% of its earnings in the form of a dividend. That structure is largely behind how it can offer its shareholders a nearly 8% yield. The company increased its dividend in early 2021. In a world where the COVID-19 pandemic substantially slowed down construction projects, that shows tremendous confidence in the company's future.
3. An insurance company that is very focused on being rock solid
Insurance giant Prudential Financial (NYSE: PRU) prides itself on its financial strength. It is so focused on being rock solid that it uses an actual rock — the Rock of Gibraltar — as its corporate logo. It creates that strength through a balance sheet that owns over $400 billion in bonds as assets and over $67 billion in net equity on it.
Insurance is the business of pricing risk. When insurance companies get it right, the can earn a positive return on the policies they write. When they get it wrong, they rely on their balance sheets to cover the excess expenses. A $67 billion net equity position means Prudential Financial can get a lot wrong in its insurance business and still wind up OK.
Thanks in part to that solid balance sheet, the company offers its investors a nearly 5% yield, and it was able to increase its dividend by a whopping 15% earlier this year. That's an incredible show of financial strength from a business that prides itself on it.
Do note that Prudential Financial is so serious about keeping its balance sheet solid that it has cut its dividend in the past to protect that strength. Most notably, it chopped its dividend by more than half in 2008 amid the financial crisis. Still, it quickly began restoring its dividend once the crisis passed and today's dividend is as large every quarter as its pre-cut dividend was every year. That shows Prudential's commitment to sharing its strength with its owners when it is able to.
Decent income from solid companies
In today's environment where even 30-year Treasury bonds yield less than 2.4%, it's refreshing to find solid companies that offer their shareholders both higher yields and growing income streams. Even better, the fact that all three of these businesses operate in different industries means that investors who own all of them have some measure of portfolio diversification.
Put it all together and there's certainly a lot to love about Enbridge, Broadmark Realty, and Prudential Financial, but only you can determine whether they deserve a place in your portfolio. If you want to collect their next available dividends, though, you have to be a shareholder before their stocks go ex-dividend. So take a look for yourself now and determine whether these dividend companies are ones that deserve a spot in your portfolio.
10 stocks we like better than Prudential Financial
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and Prudential Financial wasn't one of them! That's right — they think these 10 stocks are even better buys.
*Stock Advisor returns as of February 24, 2021
Chuck Saletta owns shares of Broadmark Realty Capital Inc., Enbridge, and Prudential Financial and has the following options: long January 2022 $100.0 calls on Prudential Financial, short January 2022 $100.0 puts on Prudential Financial, short June 2021 $105.0 calls on Prudential Financial, and short June 2021 $85.0 puts on Prudential Financial. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool has a disclosure policy.