Is EEP Stock’s High-Dividend Yield of 9.7% Safe?
December 24, 2016
Earn 9.7% from This High-Dividend Stock
For income investors, the goal is always looking for a high-dividend stock that continues to pay a steady dividend over time. This is why it is important to understand a company before making a investment decision. If a decision is made without looking at the right aspects of a business, it could take longer to reach this goal, as well as impact your current income.
A high-dividend stock worth consideration is Enbridge Energy Partners L.P. (NYSE:EEP) stock. The company has a history of paying a steady dividend to investors.
Shares of EEP stock currently trade at $23.84, which has a high yield of 9.78%. The present dividend of $0.583 is paid on a quarterly basis.
Now, the question to ask is, “is this high-dividend stock safe to reach your goals?”
Even though this is a high-dividend stock, Enbridge’s dividend has been increased three times since 2013. This shows investors that the company’s management team is confident enough in its operations to increase the payout.
Another reason for the increase in the payout is because Enbridge operates in the pipeline sector. There is not much excitement in this market segment for investors, and EEP stock would be classified as a boring investment. However, there is nothing boring about continued income that is growing over time.
Enbridge operates and transports oil through pipelines across North America, with its customers being the oil companies. Such businesses often don’t have a choice about using pipelines because they are the safest and quickest method of moving oil. This is great for Enbridge because its earnings are protected from inflation; as time passes, the cost of using the company’s services increases.
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Enbridge operates in a high-barrier-to-entry business, which means that it is difficult for a competitor to start a business in this market. Entry is challenging because a huge amount of capital is needed, along with land rights and approval from the government. Further, all this is required before construction has even begun. With so much necessary, it’s no wonder that operating in such a environment protects Enbridge’s earnings due to a lack of competition.
The last reason the dividend would be considered safe is because the company’s incurred daily costs are very minimal, only including the maintenance cost of the pipeline. Therefore, the company’s profits have large operating margins. This is because all the costs occur before and during the construction of the pipeline. Once the pipeline is completed, there is only cash flow that is being generated from business operations.
Also Read:
The Top 10 High-Dividend Stocks with Growing Payouts
The Best Pipeline Stocks for Retirement Income
Final Thoughts on EEP Stock
All this being said, EEP stock does appear to be safe looking forward, a theory supported by the dividend increase. Also, Enbridge operates in a large environment with a high barrier to entry.
Shares of EEP stock are flat over the last year, with the return coming via the dividend yield. For patient investors, this could be an opportunity to get paid until the market becomes aware of this high-dividend stock.
