Historically, dividend stocks have been a great way to create wealth, yielding higher returns and lower volatility, on average, than companies that do not pay dividends.
Over time, dividend income increases can be enormously profitable. Take Warren Buffett’s investment in Coca Cola as an example. When factoring in dividend increases and stock splits, it’s reported that Buffett has a cost basis of around $3 per share on Coca Cola while annual dividends pay $1.50 per share, resulting in an astonishing 50% payout per year on his original principal invested.
Why Consider ABR and EPD?
When looking at the dividend yields of ABR and EPD, experienced investors will know to dive deeper.
Because these two companies offer high yields, which can be a risky red flag. Investors can fall victim to dividend traps — which is when a stock has an unsustainable payout. So, just because a company offers a high dividend isn’t necessarily a reason to invest immediately. This concern is alleviated upon a closer look at the fundamentals of ABR and EPD.
After all, when scouting for dividend stocks, the key is not just finding companies that offer high dividend yields. These companies need to maintain those yields over the coming years, if not decades. Both of these companies tick that box. Both ABR and EPD have a history that’s attractive to investors and plenty of growth prospects ahead of them barring some exogenous shock.
Arbor Realty Trust Focuses on Mortgages
Arbor Realty Trust is what’s known as a real estate investment trust. This national direct lender offers debt capital for the multifamily loan and commercial real estate industries.
Because Arbor Realty Trust is a REIT, it must distribute 90 percent of its taxable net income to investors each year. Currently, it yields an 8.31 percent dividend. As long as it can sustain this yield (and there is no change to the stock price or dividend rate), investors could double their money in approximately eight and a half years.
While reviewing Arbor’s history, the company has not only maintained its dividend over the years but has also increased it. Over the last decade, this has resulted in a more than 700 percent total return. You can review ABR’s dividend history here.
The company is strong and owns a growing portfolio with a core focus on fairly stable real estate, such as commercial real estate loans secured by multifamily properties and single-family rental homes. Arbor also has a growing list of funding sources, offering the firm continuous support to expand.
Enterprise Products Partners Specializes in Natural Gas and Crude Oil
Enterprise Products Partners L.P. is one of the largest midstream natural gas and crude oil pipeline companies in North America.
Being a master limited partnership (MLP), Enterprise must also distribute 90 percent of their income. In doing so, the company can maintain its tax advantages.
Enterprise currently offers a dividend yield of over 7.5 percent, meaning you could double your money in approximately nine and a half years. Once again, that’s assuming no changes to the stock price or payout rate.
As of February 2022, Enterprise has increased its payout by 3.3 percent over the past year alone. This increase added to the company’s 23-year growth streak. Take a closer look at Enterprise’s distribution payout history here.
The company itself is showing no signs of slowing down as it has recently reported multi-billion dollar acquisitions and construction projects. These include the acquisition of Navitas Midstream Partners and the development of infrastructure to move to cleaner fuels. Best of all, Enterprise’s balance sheet is strong, which will continue to support solid dividend yields.
If you’re concerned that Enterprise primarily focuses on fossils fuels, know that the company is actively working on lower-carbon investment opportunities, ranging from renewable fuels to circular plastics. There is plenty of room for growth.
Be The Wealthy Tortoise, Not The Poor Hare
ABR and EPD are two companies that continue to experience growth year over year — and, more importantly, are covering their expenses and have attractive cash flows.
Enterprise Products Partners and Arbor Realty Trust only need to maintain their current dividend to ensure investors double their money in under a decade. However, based on the history, growth potential and financial strength of these companies, it’s likely that they will continue to increase their dividend rate over the coming years.
Although there are plenty of dividend stocks to choose from, ABR and EPD are excellent starting points if you’re ready to take dividend investing more seriously. From there, you can grow your portfolio of dividend stocks.