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3 High-Yield Dividend Stocks I'd Buy Right Now

Matthew DiLallo, The Motley Fool

Most investors look at high-yield dividend stocks as a source of income. While they certainly provide that, what many investors probably don't know about them is that they're also more likely to outperform the market than their stingier peers and do so with less volatility. It's that lower-risk upside that makes them so appealing to me.

That's why I own several high-yield stocks. However, of that group, three currently stand out as having the greatest probability of delivering market-beating returns from here: Kinder Morgan (NYSE: KMI), Brookfield Property Partners (NASDAQ: BPY), and Crestwood Equity Partners (NYSE: CEQP), Because they're my highest conviction ideas, I'd buy any one of them right now.

Rising coin stacks with the word yield spelled out on block letters.

Image source: Getty Images.

What more could you want?

Not only does natural gas pipeline giant Kinder Morgan currently yield an attractive 4.5%, but that payout is also on an increasingly improving foundation. For starters, the company expects to generate enough cash flow this year to cover its dividend and fund all its growth-focused spending with about $500 million to spare. Meanwhile, it has worked hard to pay down debt, which has driven its leverage ratio below its target level. Therefore, it could soon win a credit rating upgrade.

However, despite all this progress, Kinder Morgan's stock trades at less than 9 times cash flow, which well below the rough average of 11 of its peer group. That discount doesn't make sense to me, which is why I think shares have considerable upside from here. Especially since the company expects to grow its dividend 25% per year in 2019 and 2020, which means it will yield almost 7% in 2020 if shares don't budge. I find that highly unlikely, which is why I'm seriously considering adding to my already large position in the pipeline giant. 

Prime real estate for a cheap price

Brookfield Property Partners owns one of the largest real estate portfolios in the world, consisting mainly of high-quality office and retail properties. These assets generate very stable cash flow, which helps support the company's 6.4%-yielding distribution to investors. The company further supports that payout with a rock-solid balance sheet, backed by an investment-grade credit rating and low leverage metrics for a real estate company.

However, as good as that income stream is, what makes Brookfield Property Partners such a compelling buy right now is its valuation. While units of the real estate partnership currently sell for around $20 apiece, the net asset value of its property portfolio is worth $29 per unit. Meanwhile, that value should grow in the coming years because the company believes it can increase its cash flow at an 8% to 11% compound annual growth rate through 2021 because of its development projects and other growth initiatives. That should support 5% to 8% growth in its distribution each year while expanding the net asset value of the company up to between $40 to $47 per unit in five years, according to Brookfield's estimates. That long-term upside is why I'm thinking about adding to my position of this core real estate holding.

A hand putting money from rising coin stacks into a jar.

Image source: Getty Images.

Plenty of upside still ahead

Midstream master limited partnership Crestwood Equity Partners has been on fire since I bought it earlier this year, up more than 35% so far. However, even with that gain, units remain undervalued given the growth it has up ahead. Crestwood recently sold for just 8.8 times next year's earnings, which was the second lowest in its peer group and well below the 11.3 average.

Not only does Crestwood have upside as its valuation moves closer to the peer group average, but it has significant earnings growth coming down the pipeline due to the expansion projects it currently has under way. In the company's view, it can grow cash flow per unit at a more than 15% compound annual growth rate through at least 2020. Add that fast-paced growth to Crestwood's high-yielding payout -- which currently yields 6.8% -- and it has the potential to continue delivering market-smashing returns in the coming years. That's why I'm thinking about adding to my position even after the recent run.

High yield and growth for a cheap price

Kinder Morgan, Brookfield Property Partners, and Crestwood Equity Partners are my three highest-conviction high-yield stock ideas at the moment. All three offer excellent income streams that they support with strong financials, they expect to grow cash flow at a healthy pace in the coming years -- which should enable them to increase those payouts -- and they trade at dirt cheap prices. Because of these factors, they all have the potential to generate market-beating returns from here, which is why I wouldn't hesitate to buy any one of them right now.

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Matthew DiLallo owns shares of Brookfield Property Partners, Crestwood Equity Partners LP, and Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool has a disclosure policy.