3 High Dividend Paying Companies to Buy
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Companies with high dividend yields offer the potential for both capital appreciation and income. High dividend yields are always attractive to investors who desire steady income in the form of dividend payouts. This article analyzes three companies that each have a dividend yield of more than 6%, and discusses how these companies will continue to provide high returns to the shareholders.
Leveraging and expanding the asset base
Boardwalk Pipeline Partners (NYSE: BWP) formalized joint venture agreements with Williams Companies to develop the Bluegrass natural gas liquid, or NGL, pipeline project in May 2013. This pipeline will transport NGLs from the Utica and Marcellus shale to the rapidly expanding petrochemical market on the U.S. Gulf Coast. The initial capacity of the Bluegrass NGL pipeline will be 200,000 barrels per day, or bpd, and will be expandable to 400,000 bpd. The Bluegrass project will use an underutilized portion of Boardwalk’s Texas gas pipeline. This will allow pipeline service to start earlier and will lead to lower tariffs compared to a completely new pipeline. The pipeline will begin service in the second half of 2015 and will drive longer term distribution growth potential.
Boardwalk designed its southeast market expansion project to increase the assets of its subsidiary, Gulf South. Under this project, 70 miles of new pipeline will transport natural gas in those areas of growing demand in the southeast region of the U.S. Fee-based contracts with an average period of ten years back the project. In the first quarter of 2013, the company received commitment from electric generation and industrial customers to add around 450 million cubic feet per day, or MMcfd. Boardwalk secured an additional 100 MMcfd commitment in the second quarter of 2013, increasing the total project size to 550 MMcfd. The construction will start in the first half of 2014 and will begin service by the end of 2014. Despite the increase in project size, the estimated cost remains around $300 million, leading to better returns.
The project cost savings will drive Boardwalk's cash distribution to $2.19 per share in 2014 and $2.25 in 2015, compared to $2.13 in 2012.
Lowered financing requirements
In June 2013 Enbridge Energy Partners (NYSE: EEP) exercised its option to decrease its interest from 40% to 25% in the Lakehead system project in order to enhance its liquidity position. The project will increase crude supply to the refinery markets in Eastern Canada and the U.S. Gulf Coast. Enbridge Energy will receive around $100 million from its general partner, Enbridge Inc., in the second quarter of 2013 as a part of capital funded in these projects.
In May 2013, Enbridge Inc. announced plans to purchase $1.2 billion of preferred units of Enbridge Energy. The price of preferred units is $25 per unit with a fixed yield of 7.5%. In addition, there will be no payment of the quarterly cash distributions on these preferred units for the first eight quarters. The delay in cash distribution will save the company $180 million through the first half 2015. Currently, Enbridge Energy has an $8.5 billion organic growth program in progress, which requires debt and equity financing.
The above two actions will reduce the funding needs of Enbridge Energy for its growth program by $1.9 billion and will improve the liquidity position of the company in the near term. Enbridge Energy’s cash distribution per share will be $2.21 in 2013 and $2.25 in 2014.
Rate case settlement
National Grid (NYSE: NGG) filed a rate settlement case for its Niagara Mohawk business in December 2012 with the New York Public Service Commission, or NYPSC. Through the rate case process, the regulatory agency determines the price the utility company will charge its customers. In March 2013, NYPSC approved the rate case, which went into effect on April 1, 2013, for a period of three years. The new rate plan will increase the company’s electric revenue by $123 million and gas revenue by $9 million in the next three years. As National Grid expects to spend around $2 billion annually in the U.S., the revenue increase will enable it continue with its infrastructure investment.
In January 2013, National Grid filed a two year rate settlement case for KeySpan Energy Delivery New York, or KEDNY, with the NYPSC. In June 2013, NYPSC approved the rate case for KEDNY, National Grid’s gas distribution business. This new rate plan will apply from Jan. 1, 2013 to Dec. 31, 2014. The new rate plan has increased capital allowances to about $320 million in 2013 and $294 million in 2014, compared to $155.4 million per year in the original rate plan. This increase will provide tax benefits to National Grid on its spending in the U.S. for further growth. National Grid's revenue will increase to $22.96 billion in 2014, which is 4.3% year-over-year growth.
All three companies have potential for distribution growth in 2013 and 2014. The utilization of existing pipeline in the Bluegrass project and the expansion project in the Southeast market will provide meaningful distribution growth from Boardwalk in 2014. The reduction in the Lakehead system project funding and the issuance of preferred units will boost the cash distribution for Enbridge Energy. The settlement of various rate cases will benefit National Grid in terms of revenue as well/ Therefore, all of these stocks are a buy.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends National Grid plc (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!