Key Points
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Consumer staples are out of favor, creating high-yield opportunities in companies like Hormel and Clorox.
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Real estate is getting hit by rising rates, making industry leaders like Realty Income more attractive.
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Midstream businesses generally have lofty yields, with Enbridge and Enterprise also offering impressive dividend histories.
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The S&P 500 index (SNPINDEX: ^GSPC) yields a tiny 1% as of this writing. That’s not enough for most dividend investors. However, if you are careful, you can still find attractive stocks with ultra-high yields of 5% or more. Here are five you should consider right now: Hormel (NYSE: HRL), Clorox (NYSE: CLX), Realty Income (NYSE: O), Enbridge (NYSE: ENB), and Enterprise Products Partners (NYSE: EPD).
Consumer staples companies are feeling the pinch
Rising inflation has led consumers to tighten their budgets. At the same time, inflation has left consumer staples companies with elevated costs, putting pressure on margins. And consumer buying habits are shifting toward healthier products. Hormel and Clorox are both working through this rough patch as best they can, but Wall Street is in a show-me mood. Right now, neither one is exactly hitting on all cylinders, so the stocks are deeply depressed.
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However, Hormel is a Dividend King, and Clorox is one year shy of reaching the 50 consecutive annual increases required to join that elite club. These are reliable dividend stocks that have both remained committed to their dividends even as they face headwinds.
Hormel has been updating its product lineup, focusing on its most attractive products and leaning into its growing food service business. In fact, it just inked an acquisition that will add chicken to its food-service product lineup. Clorox has also been reworking its portfolio, recently adding Gojo, the owner of Purell, to the fold, which enhances its position in the cleaning space.
These are companies that remain focused on growth as they adjust to what are, really, just normal swings in the consumer staples space. But while Wall Street is downbeat, dividend lovers can pick up Hormel and Clorox with historically high 5%+ yields.
Realty Income is a boring high-yield giant
Rising interest rates and bond yields increase the cost of capital for real estate investment trusts (REITs) such as Realty Income. So, in the near term, the company’s business will face some headwinds. However, property markets have always adjusted to higher rates, allowing REITs to continue making profitable acquisitions. But right now, Wall Street is thinking short-term, leaving Realty Income with an attractive 5%+ dividend yield.
The thing is, conservatively run Realty Income is built to be a boring and reliable dividend stock. The dividend is well covered and has been increased annually for 31 years. The portfolio is huge, with over 15,500 properties, and diversified, with exposure to North America and Europe spread across retail, industrial, and more unique assets like casinos and data centers. The balance sheet is investment-grade rated. If you like collecting reliable dividends, high-yield Realty Income, which pays monthly, should be on your short list.
Enbridge and Enterprise move oil; they don’t produce it
Enbridge and Enterprise are both North American midstream energy giants, owning the infrastructure that helps to move oil and natural gas around the world. They don’t produce oil; they charge fees for moving it. That allows investors to gain exposure to energy without taking on the commodity risk associated with an energy producer. And they both have yields north of 5%.
Enterprise is a pure-play midstream business structured as a master limited partnership. It has increased its distribution annually for 28 years, which is basically as long as it has been publicly traded. The long-term story is that the conflict in the Middle East is prompting countries to rethink energy security, which should make North American energy more attractive. Enterprise is well positioned to help supply that energy, with a notable focus on natural gas, which is increasingly being used to produce electricity.
Enbridge is a Canadian company with midstream assets, but it has a broader mandate to supply the world with the energy it needs. That has led the company to own regulated natural gas utilities and clean energy assets. It is basically shifting its portfolio in response to the world’s changing energy demands. All of its businesses, however, produce reliable cash flows to support its dividend. And that dividend continues to grow every year, with its annual streak now up to 31 years.
Neither Enterprise nor Enbridge will be exciting to own, but that’s the point. Boring is good in the volatile energy sector if you are a dividend investor.
Great businesses, high yields
Hormel, Clorox, and Realty Income are all well-run businesses dealing with likely short-term headwinds. Given their histories, it is highly likely they survive and continue to reward investors with dividend growth. Enbridge and Enterprise are boring high-yield options in the highly volatile energy sector. They are both set to keep rewarding investors with dividend growth for years to come. All of these stocks, meanwhile, have 5%+ yields, which could help to power up your income portfolio if you add them to the mix.
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Reuben Gregg Brewer has positions in Clorox, Enbridge, Hormel Foods, and Realty Income. The Motley Fool has positions in and recommends Enbridge and Realty Income. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
