The Allure of Higher-Yielding Dividend Stocks: A Guide to Low-Risk Options

Investing in higher-yielding dividend stocks can be an enticing way to generate passive income. With the potential for substantial returns, these stocks often attract investors looking for reliable income streams. However, a higher dividend yield can sometimes signal that a company’s payout may be at risk of reduction. This article explores five low-risk dividend stocks with yields exceeding 5%, significantly higher than the S&P 500’s sub-1.5% yield. These stocks not only offer attractive dividends but also come with lower risk profiles, making them worthy additions to your investment portfolio.

1. Enterprise Products Partners (EPD)

Current Yield: 6.7%

Enterprise Products Partners is a master limited partnership (MLP) that has established itself as a leader in the midstream energy sector. The company boasts a robust cash flow profile and a strong balance sheet, which underpins its generous dividend payout.

Enterprise’s integrated network of pipelines, processing plants, and storage terminals generates predictable cash flow, primarily supported by long-term, fixed-rate contracts. In the first quarter, the company produced enough distributable cash flow to cover its high-yielding payout by a comfortable 1.7 times.

With a remarkable track record of increasing its distribution for 26 consecutive years, Enterprise is well-positioned for future growth. Currently, it has $7.6 billion in major capital projects slated for completion by the end of next year, which will further enhance its cash flow and support continued dividend increases.

2. Enbridge (ENB)

Current Yield: 5.8%

Enbridge, a Canadian pipeline and utility company, is another strong contender in the high-yield dividend space. The company benefits from stable cash flow due to predictable cost-of-service agreements and long-term, fixed-fee contracts that secure 98% of its annual earnings.

Enbridge has consistently met its annual financial guidance for 19 years, showcasing its operational reliability. The company pays out 60% to 70% of its stable cash flow in dividends, retaining the remainder for expansion projects. With a strong investment-grade balance sheet and a leverage ratio trending toward the lower end of its target range, Enbridge is well-equipped to invest billions into expanding its oil and gas infrastructure. This growth has enabled the company to increase its dividend for 30 consecutive years.

3. NNN REIT (NNN)

Current Yield: 5.5%

NNN REIT focuses on investing in single-tenant retail properties secured by long-term, triple-net leases. This structure provides stable cash flow, as tenants are responsible for all property operating expenses, including maintenance and taxes.

With a conservative dividend payout ratio and a strong balance sheet, NNN REIT expects to generate $200 million in post-dividend free cash flow this year. Its sector-leading 11.6-year weighted average debt maturity gives it ample capacity to invest in new income-generating properties. NNN REIT has successfully raised its dividend for 35 consecutive years, a feat achieved by only a handful of publicly traded companies.

4. Verizon (VZ)

Current Yield: 6.3%

Verizon, a giant in the mobile and broadband sector, generates substantial recurring cash flow from its customer base. Last year, the company reported $36.9 billion in cash flow from operations, which comfortably covered its capital expenditures and dividend payments.

Verizon’s strategic investments in expanding its fiber and 5G networks are expected to bolster future cash flows. The company is also in the process of acquiring Frontier Communications for $20 billion, further enhancing its infrastructure. With a history of raising its dividend for 18 consecutive years, Verizon remains a reliable choice for dividend-seeking investors.

5. Vici Properties (VICI)

Current Yield: 5.4%

Vici Properties is a REIT that invests in high-quality real estate within the gaming, hospitality, and entertainment sectors. The company leases its properties back to operating tenants under long-term NNN leases, ensuring a stable income stream.

Vici pays out 75% of its stable income in dividends and maintains a solid investment-grade balance sheet. This financial strength allows the company to invest in additional income-generating properties. Since its formation, Vici has raised its dividend every year, achieving a compound annual growth rate of 7.4%, outpacing its NNN lease peers.

Conclusion: A Smart Choice for Passive Income

The five companies highlighted—Enterprise Products Partners, Enbridge, NNN REIT, Verizon, and Vici Properties—offer stable cash flow and strong financial profiles, making them excellent candidates for investors seeking high-yield dividends. Their ability to generate consistent income while maintaining growth potential makes them attractive options in today’s market.

Investing in these high-quality, high-yielding dividend stocks can provide a reliable source of passive income, allowing you to build wealth over time with confidence. Whether you’re a seasoned investor or just starting, these stocks can enhance your portfolio’s income-generating capabilities without the typical risks associated with higher-yield investments.

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. For more information, please refer to the Motley Fool’s disclosure policy.