How to Get Your Secret Dividend Booster
One of the best deals on the market right now will probably bore you to death.
But if you’re a yield chaser, you need to pay attention.
Pipeline companies have gotten crushed this year.
That’s despite the fact that oil prices continue to head higher. Obviously, this gap can’t last forever.
Did you miss the bottom of the energy crash?
Well, you’ve got another chance to lock in high yields at low prices.
Though oil prices are at a two-year high, many master limited partnerships (MLPs) trade near last year’s lows.
Low prices mean high yields. An average of nearly 8% across the sector. How does that sound?
Even low-risk players have taken a beating. One of my favorite MLPs is Enterprise Products Partners LP (NYSE: EPD).
At the heart of EPD’s investment story is an irreplaceable asset base. The company’s sprawling infrastructure spans the full midstream value chain—from the wellhead to the market.
The MLP boasts more than 49,000 miles of pipelines and 260 million barrels of storage capacity.
But none of that matters if you don’t get paid. The good news is that EPD yields nearly 6.5%.
And most of that is tax deferred. So you get to hang onto more of your money until it’s time to sell.
Equally important, the company is very conservative about its finances.
It’s not content to merely have one of the strongest balance sheets in the industry. Unlike most of its competitors, EPD also retains a significant amount of cash flow.
Meanwhile, other MLPs try to pay out all of their cash flows and then some.
That’s fine during boom times, but dangerous when things go bust.
Instead, EPD’s cash hoard helps support its high payout and fund future growth.
In fact, the company has gotten even more conservative recently. It plans to retain even more cash flow so that it can pay for half of all growth spending.
By contrast, most MLPs raise half their cash by issuing more shares. This dilutes their shareholders over and over again.
Well, EPD will be one of the first to stop doing that.
A high yield backed by a strong balance sheet is an income investor’s dream come true.
But there’s a way to take a good situation and make it even better.
There’s an old-fashioned approach to investing that most investors overlook.
These days, most brokers will reinvest your dividends for free.
But in the past, the best way to compound your wealth was by investing directly with a company.
Dividend reinvestment plans (DRIPs) hearken back to an era of high brokerage fees.
With most brokers offering dirt-cheap fees, DRIP investing has fallen out of fashion.
That doesn’t mean you should ignore it.
Even low-cost brokers still charge commissions on buying stock.
But there are still some DRIPs that let you buy new shares with no fees.
EPD is one of them.
So by investing directly with EPD, you won’t pay any fees until you sell.
Here’s where it gets even better.
Companies also used to give DRIP investors discounts on reinvestments. Most have discontinued this practice.
Not EPD! It still offers DRIP investors a 2.5% discount on reinvestment.
That may not sound like much. But it essentially takes an already-high yield and boosts it even further.
Now imagine the compounding effect of all those discounts as the months and years roll by.
Yep, this has got to be one of the best deals out there: High quality at a low price with an enhanced yield.
There is a catch. You have to already own at least one share of EPD to qualify. But you should already own EPD anyway.