We recently compiled a list of the 12 Best 5% Dividend Stocks To Buy According To Hedge Funds. In this article, we are going to take a look at where Enterprise Products Partners L.P. (NYSE:EPD) stands against the other dividend stocks.
Dividend investors have often debated the balance between high yields and dividend growth. Analysts tend to favor companies with robust dividend growth, advising investors to avoid the yield traps. However, many studies suggest that high dividend yields aren’t necessarily a negative factor.
An example of this is a report from Newton Investment Management, which found that high-yield dividend stocks outperformed the broader market during periods of high inflation between 1940 and 2021. The report also showed that portfolios with high-yield dividend stocks performed better than those with low or no dividends, with high-yield portfolios exceeding low-yield ones by 199 basis points and zero-yield portfolios by 330 basis points. While the findings are insightful, the report lacks details on the specific market conditions during these periods, offering only a general overview of high-yield stock performance. Analysts have closely studied how dividend stocks fare during market volatility, given the heightened need for consistent income. As a result, they recommend considering high-yield stocks only if these companies also demonstrate a solid track record of dividend growth.
Also read: 10 Best Dividend Stocks Yielding at Least 7% According to Analysts
This is a common challenge for investors, who often believe that companies with strong dividend growth don’t offer high yields. However, this isn’t necessarily the case. Many companies provide above-average dividend yields while also maintaining solid records of dividend growth. In fact, dividend yield plays an important role in sustaining dividend growth. For example, the Dividend Aristocrats Index, which includes companies that have increased their dividends for 25 consecutive years, has managed to maintain a high yield without sacrificing growth. Over the 26 years ending in 2023, the index consistently outperformed its benchmark while maintaining yields between 2% and 2.9%. On average, the index yielded 2.5%, notably higher than the market average of 1.8%, as reported by S&P Dow Jones Indices.
Analysts typically recommend targeting dividend yields between 3% and 6%, as this range tends to offer the best balance of potential for both dividend growth and stock price appreciation. A report from Nuveen highlighted that global companies with moderate dividend yields (ranging from 0% to 3%) generally show stronger earnings growth, profitability, and profit margins compared to those with higher yields or no dividends at all. These factors also help reduce risk, particularly in times of market volatility.
Another study by Wellington Management highlighted the historical outperformance of high-yield stocks. The report analyzed dividend-paying stocks in the broader market index from 1930 to 2019 and grouped them into five categories based on their dividend yields. The top 20% of dividend payers performed the best, followed by the moderate dividend group, both surpassing the broader market in multiple periods. However, the lower dividend groups showed less consistent performance and generally underperformed the index. Given this, we will now take a look at some of the best dividend stocks with over 5% yield.
Our Methodology:
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of the third quarter of 2024 and picked 12 dividend stocks that have yields above 5%, as of February 5. These companies have strong histories of paying dividends to shareholders. The stocks are ranked in ascending order of hedge funds’ sentiment toward them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
Aerial view of a refinery tower surrounded by the sprawling landscape of pipelines in an oil & gas midstream facility.
Enterprise Products Partners L.P. (NYSE:EPD)
Number of Hedge Fund Holders: 25
Dividend Yield as of February 5: 6.48%
Enterprise Products Partners L.P. (NYSE:EPD) is an American midstream natural gas and crude oil pipeline company, headquartered in Texas. The company is transitioning into a growth phase, driven by opportunities in NGL exports and rising power demand fueled by AI. The company currently has $6.9 billion worth of expansion projects in its construction pipeline. In addition, it views AI-driven power demand as one of the strongest indicators of increasing natural gas consumption. With extensive pipeline and storage infrastructure, Enterprise is among the few companies well-equipped to capitalize on this trend. It has highlighted its strong positioning in the Dallas-Fort Worth and San Antonio regions, which are emerging as key data center hubs. the stock has surged by over 25% in the past 12 months.
Enterprise Products Partners L.P. (NYSE:EPD) is grabbing investors’ attention because of its stronger-than-expected earnings in the fourth quarter of 2024. The company reported revenue of $14.2 billion, which surpassed analysts’ estimates by 74.5 million. Its operating income and net income for the quarter came in at $1.9 billion and $1.63 billion, respectively.
In addition to other financials, Enterprise Products Partners L.P. (NYSE:EPD)’s cash generation also remained strong. The company generated over $2.3 billion in operating cash flow during the quarter and its adjusted free cash flow came in at $336 million. This cash position enabled the company to achieve its 27th consecutive annual dividend hike in January 2025. It currently offers a quarterly dividend of $0.535 per share for a dividend yield of 6.48%, as of February 5.
At the end of Q3 2024, 25 hedge funds tracked by Insider Monkey held stakes in Enterprise Products Partners L.P. (NYSE:EPD), up from 23 in the previous quarter. The total value of these stakes is roughly $316 million.
Overall EPD ranks 11th on our list of the best dividend stocks with over 5% yield. While we acknowledge the potential for EPD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than EPD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
