These businesses are high-yield energy stocks and may transform a $1,000 investment into a lucrative and growing passive income stream.
As the Federal Reserve raises interest rates, returns on income-producing investments are rising. Government bonds and bank CDs are currently yielding roughly 4%. Meanwhile, dividend yields on many equities have risen even higher as interest rates have pushed down stock prices.
As a result, folks with $1,000 in spare cash can turn it into an appealing income stream by purchasing equities with a high yield. Atlantica Sustainable Infrastructure (AY -1.41%), Enbridge (ENB -0.65%), and Enterprise Products Partners (EPD -1.25%) are three appealing possibilities to explore. These energy equities all have extremely high dividend yields. Even better, these firms should be able to keep increasing their massive payouts in the future.
A steady source of revenue
This year, Atlantica Sustainable Infrastructure shares have lost more than a quarter of their value. The company’s dividend yield has risen to 6.3% as a result of the sell-off. Atlantica could turn a $1,000 investment into a $63 annual passive income stream at that pace. That’s multiple times the annual passive income stream earned by investing $1,000 in the S&P 500, which currently yields 1.6%.
The precipitous drop in Algonquin Power & Utilities (AQN -2.02%), a key Atlantica stakeholder, is one factor impacting on the company. The utility reported a larger-than-expected adjusted loss in the third quarter and slashed its full-year projection. However, this is due to concerns with Algonquin’s primary business, not an issue with Atlantica’s operations.
Atlantica is having another successful year. The company’s cash available for distribution (CAFD) is up 6.2% this year (3% per share), fueled by the strong performance of its current sustainable infrastructure businesses (renewable energy, natural gas, electricity transmission, and water) as well as the favorable impact of new investments. As a result, the company has generated enough income to meet its payout around 1.18 times over, allowing it to retain some funds for future investments. Atlantica also has plenty of cash on hand to fuel future initiatives. This year, the firm has already secured $150 million in expansion prospects, including new solar energy and battery storage projects, in order to maintain its cash flow and dividend growth.
The energy to keep growing
Enbridge, a Canadian energy infrastructure company, pays a significant dividend yield of 6.2%. That reward is built on a solid basis. Enbridge has consistent cash flow thanks to long-term contracts and tariff structures that are regulated by the government. Meanwhile, it barely distributes 60% to 70% of its regular income to maintain its dividend. This provides it with a large buffer while also allowing it to keep cash on hand to support fresh investments. Enbridge also has an investment-grade credit rating, which provides it with greater financial flexibility.
These two elements provide Enbridge with annual investment capability in the billions of dollars. The business believes it has enough cash to build its CAFD at a 5% to 7% yearly rate until at least 2024. Meanwhile, the company has a growing backlog of expansion projects to assist it to improve its cash flow. New natural gas pipelines, utility expansion projects, and renewable energy developments are among them.
Enbridge’s strong cash flow should allow the energy infrastructure behemoth to keep raising its dividend. Enbridge has increased its dividend for the past 27 years in a row.
This high return is built on a solid basis, and Enterprise Products Partners offers an even higher yield of 7.7%. That large payout could be based on the most solid basis of this trio. The master limited partnership generates a relatively steady cash flow, which is supported by long-term contracts and rate structures that are regulated by the government. Meanwhile, it only distributes around 55% of its cash flow to finance its big-time payout. Furthermore, it has one of the lowest leverage ratios in the energy midstream industry.
These features provide Enterprise Products Partners with significant financial flexibility as it expands its operations. The corporation is currently constructing $5.5 billion in expansion projects, including new pipelines, storage terminals, processing plants, and export capacity. As they come up over the next few years, these investments should provide incremental cash flow. This would allow Enterprise Products Partners to continue developing its distribution, as it has for the past 24 years.
Streams of high-octane passive income
Atlantica Sustainable Infrastructure, Enbridge, and Enterprise Products Partners create consistent cash flow to fund their high-yielding dividends. Meanwhile, they have plenty of financial flexibility and investment opportunities to keep growing their cash flows. They’re fantastic ways for investors to transform $1,000 of spare cash into a lucrative and growing income stream.
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