Dividends have been one of the many casualties of the COVID-19 outbreak. Several companies have reduced or eliminated their payouts to shore up their financial profiles. Many more are likely to do so in the coming months if the economy doesn’t bounce back quickly.
However, not all dividends are at risk. Several companies generate steady cash flow and have strong financial profiles, which should support their payouts during these turbulent times. Three higher-yielding ones that stand out are Brookfield Infrastructure (NYSE:BIP)(NYSE:BIPC), Southern Company (NYSE:SO), and TC Energy (NYSE:TRP).
Built for times like this
Brookfield Infrastructure currently pays a 4.9%-yielding dividend. That payout’s on solid ground even though the COVID-19 outbreak will have some effect on the company’s operations. It already warned that volumes at its ports and toll roads have fallen because of travel restrictions and a slowdown in the global economy. However, about 60% of the company’s earnings have no volume exposure thanks to take-or-pay contracts through which it gets paid even if customers don’t use their contracted capacity. Its earnings therefore won’t fall nearly as much as those without contractual protection.
Meanwhile, the company has plenty of room to cushion the blow because it pays out only about 60% of its cash flow to support its distribution. On top of that, it has a top-notch balance sheet with a strong credit rating and lots of liquidity (i.e., cash and available borrowing capacity). That financial flexibility puts Brookfield in the position to make acquisitions, which is something it has done during periods of economic turmoil. If it can find a needle-moving deal, it could emerge from this downturn with even more fuel to grow its lucrative dividend, something it has done for more than a decade.
The power to keep paying
Electric utilities like Southern Company tend to be relatively recession-resistant. While the COVID-19 outbreak is having some impact on power demand and forced Southern to slow work at its large nuclear project because of infections at the site, those issues shouldn’t have a major impact on its earnings. The company’s 4.3%-yielding dividend should be on solid ground.
Furthermore, the company has a strong balance sheet and well-run operations. Those factors, along with the fact it will benefit from growing power demand in the South once economic conditions improve, should give Southern the power to continue paying its dividend. Overall, Southern has paid a dividend equal to or greater than the previous quarter’s level for more than 70 years, including increasing it in each of the past 18 consecutive years.
A durable business
TC Energy pays an attractive 5.1%-yielding dividend. The Canadian pipeline giant supports that payout with stable cash flow and a top-notch balance sheet. Overall, 92% of its earnings come from sources that have no exposure to commodity prices or volume impacts. Meanwhile, it pays out only about 40% of those stable earnings to support its dividend. It compliments those factors with one of the highest credit ratings in the pipeline sector.
That strong financial profile gives TC Energy the flexibility to expand its energy infrastructure network. It believes these investments will grow its earnings by 5%-7% per year, which could support similar dividend growth. That would enable TC Energy to maintain its track record of dividend increases, which currently stretches for the past 20 years.
A long history of richly rewarding dividend investors
These companies have all given their investors a raise at least once a year for more than a decade. That extensive track record shows that they’ve built their payouts to endure challenging times. That means these payouts appear poised to not only make it through the current downturn intact but also keep rising in the coming years. And that makes them ideal options for yield-seeking investors.
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Matthew DiLallo owns shares of Brookfield Infrastructure and Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
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