The past few months have been extremely volatile in the stock market. Tariffs and other concerns have caused a lot of uncertainty about what’s ahead. There’s growing angst that the U.S. could be heading toward a recession.
In times like these, it’s best to focus on making safer investments that can deliver more reliable returns, like high-quality dividend stocks. Two top options to buy right now are Enterprise Products Partners (EPD 1.17%) and NNN REIT (NNN 1.50%). They’ve both delivered more than a quarter century of dividend growth, which is impressive considering there’s been a couple of severe economic downturns during that period. Their durable business models make them great stocks to buy for those with some cash to invest right now.
A prodigious passive income stream
Enterprise Products Partners is one of the country’s largest energy midstream companies, with a vast network of pipelines, processing plants, storage facilities, and export terminals. Those assets generate very stable cash flow for the master limited partnership (MLP) via long-term contracts and government-regulated rate structures. The company pays out a significant chunk of that steady cash flow to investors via a distribution that yields nearly 7.5%. At that rate, it would turn a $250 investment into almost $19 of annual passive income.
That hefty payout is very safe. Enterprise Products Partners produced enough cash to cover its distribution by a comfy 1.7 times last year. Meanwhile, it has one of the strongest balance sheets in the energy midstream sector, with A-rated credit and a low leverage ratio.
Enterprise Products Partners uses the cash it retains and its balance sheet flexibility to continue expanding its energy midstream network. The MLP currently has $7.6 billion of major growth capital projects under construction that should come online and contribute to its stable cash flows through the end of next year.
The growth from organic capital projects and accretive acquisitions (it bought Pinon Midstream for $950 million last year) should give Enterprise the fuel to continue increasing its distribution. The MLP has raised its payout for 26 years in a row. Enterprise’s high yield and steady growth make it a great passive income option for those comfortable with investing in MLPs, which send a Schedule K-1 Federal Tax Form each year.
Hitting another milestone
NNN REIT is a real estate investment trust (REIT) focused on owning single-tenant retail properties like automotive service locations, convenience stores, and restaurants. It signs long-term, triple net leases (NNN) with tenants that provide it with very stable rental income because tenants cover real estate taxes, routine maintenance, and building insurance. The landlord uses that stable cash flow to pay its more than 6%-yielding dividend. It would turn a $250 investment into over $15 of annual dividend income at that rate.
That high-yielding payout is on a very secure foundation. NNN REIT generates about $200 million of excess free cash flow after paying dividends each year. Meanwhile, it has a conservative balance sheet, with a sector-leading 12.1-year weighted average debt maturity. These factors give it the financial flexibility to continue acquiring income-generating retail properties.
NNN REIT primarily acquires properties through its existing tenant relationships via sale-leaseback transactions. Those deals grow the REIT’s portfolio and income stream, enabling it to increase its dividend. NNN REIT delivered its 35th consecutive annual dividend increase last year. Only two other REITs and less than 80 publicly traded companies have reached that milestone.
Proven durability during downturns
Enterprise Products Partners and NNN REIT have steadily grown their dividends over the decades. That’s a tribute to the durability of their business models and their conservative financial profiles. Those features should continue serving them well in the future by enabling these companies to continue increasing their dividends during a variety of economic conditions. It makes them great dividend stocks to buy and hold if you’re seeking safe and reliable passive income streams.
Matt DiLallo has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
