Income-seeking investors have loved PepsiCo's (NASDAQ: PEP) dividends for a long time. After all, the giant food and beverage company is a member of the elite group of Dividend Aristocrats -- stocks that have increased their dividends for at least 25 consecutive years.
But we asked three Motley Fool contributors to pick dividend stocks that actually pay you more than Pepsi does. They selected AT&T (NYSE: T), Brookfield Infrastructure Partners (NYSE: BIP), and Enterprise Products Partners (NYSE: EPD). Here's what they like about these three solid dividend stocks.
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Huge dividends and discounted growth potential
Keith Noonan (AT&T): AT&T's 35-year history of annual payout increases gives it a track record that few companies measure up to and a top dividend-growth streak in the telecommunications industry. A yield of around 6% is also about as good as you're going to get for a reasonably healthy American telecom company.
With the business having a strong foundation in the mobile wireless space that should create additional growth avenues and a bankable growth opportunity in the entertainment industry courtesy of the massive Time Warner acquisition, AT&T has a core business that looks pretty sturdy. The stock continues to look cheap trading at roughly 9.5 times this year's expected earnings.
No recommendation of AT&T's stock would be complete without a discussion of some of the challenges facing the business. The company's DIRECTV satellite television segment will likely continue to lose ground amid the broader cord-cutting progression, and there's currently not much evidence to suggest that the rebranding of its DIRECTV Now streaming to AT&T TV Now will do much to stem the service's loss of subscribers. Additionally, the need for mobile wireless service providers to transition to "unlimited" data plans without substantial pricing increases has put downward pressure on sales and earnings growth.
On the other hand, the Time Warner segment's movie and video game studios and television networks, including HBO, Cartoon Network, TNT, and CNN (among others), give the company a strong position in entertainment content and create feasible avenues to growth in the streaming-media space. What's more, AT&T's foundations in mobile wireless communications and early leadership position in the American 5G mobile internet network could pave the way for a return to pricing strength, and the ability to add more consumer and enterprise connections and services as part of the overall Internet of Things push.
Putting the pop in infrastructure
Keith Speights (Brookfield Infrastructure Partners): I like Pepsi stock, particularly because of the strength of its Frito-Lay snack products. But if you're looking for dividends, Brookfield Infrastructure Partners beats Pepsi hands-down. While Pepsi's dividend yields 3%, Brookfield Infrastructure's dividend yield stands at nearly 4.6%.
But what about Pepsi's great dividend track record? It's really admirable. I think, though, that Brookfield Infrastructure Partners' dividend is just as reliable as the big beverage and snack giant's dividend is. Actually, over the last three years, five years, and 10 years, Brookfield Infrastructure has given shareholders bigger dividend increases than Pepsi has.
Like its middle name indicates, Brookfield Infrastructure Partners focuses on infrastructure. Think natural gas pipelines, processing plants, and storage facilities, plus railroads, cell towers, data centers, ports, toll roads, and more. These assets are spread all over the world. And they generate reliable cash flow, year in and year out.
Brookfield Infrastructure Partners' growth strategy relies on what it calls a "capital recycling program." The company routinely sells off lower-performing assets to reinvest its money in potentially higher-performing assets. Because of these growth opportunities and the barriers to entry in its markets, Brookfield Infrastructure Partners ranks at the top of my list of high-yield dividend stocks.
Big yield, super conservative
Reuben Gregg Brewer (Enterprise Products Partners): If you're looking at PepsiCo as a reliable income stock but would like a little more yield, then consider limited partnership Enterprise Products Partners. It yields 5.9% and has over two decades of annual distribution behind it.
With a $63 billion market cap, Enterprise is one of the largest midstream oil and gas players in North America. Its business is largely backed by fee-based contracts, which means it gets paid for the use of its pipelines, processing facilities, and storage assets. The price of oil and gas is far less important to the partnership's results than the demand for these vital fuels. The consistently rising distribution is proof of that.
More interesting is Enterprise's conservative approach to its balance sheet. It is among the least leveraged of its peers, with debt to EBITDA roughly in line with PepsiCo's. It also had robust distribution coverage of 1.8 times in the second quarter of 2019 (1.2 times is considered good). In fact, the partnership has been working to reduce risk even further by shifting its business model so that it can self-fund more growth and reduce the need for dilutive unit issuances.
If you are looking for a hefty yield from a reliable payer, Enterprise should be on your short list. And it has another $6 billion worth of growth projects in the works through 2020 to keep your income flowing and growing.
10 stocks we like better than AT&T
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Keith Noonan owns shares of AT&T. Keith Speights owns shares of PepsiCo, Inc. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Infrastructure Partners and Enterprise Products Partners. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.