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3 Stocks to Buy With Dividends Yielding More Than 6%

Matthew DiLallo, The Motley Fool

The best high-yield stocks share three common characteristics: They generate steady cash flow, have a conservative payout ratio, and possess a solid balance sheet. Three companies that comfortably fit that profile are Enterprise Products Partners (NYSE: EPD), MPLX (NYSE: MPLX), and Crestwood Equity Partners (NYSE: CEQP). Not only that, but this trio of midstream master limited partnerships (MLPs) takes things a step further by having visible growth coming down the pipeline, which makes them excellent income stocks to buy right now.

One of the best in the sector

Enterprise Products Partners currently gets about 90% of its income from predictable sources like fee-based contracts tied to its pipelines and processing plants. Meanwhile, the company distributes roughly 77% of that money to investors, implying a comfortable 1.3 times coverage ratio. Both numbers are on pace to improve in the next year, which will enhance the company's already top-notch financials.

Finally, Enterprise boasts one of the highest credit ratings among MLPs. These characteristics put its 6.1%-yielding payout on a nearly unshakable foundation.

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Enterprise uses the excess cash it generates, along with its strong balance sheet, to invest in expansion projects. The company recently put the finishing touches on $5.3 billion of expansions and has another $4.9 billion underway, which should provide a significant boost to cash flow in the coming quarters. Because of that, Enterprise should have no problem increasing its distribution, which it has done for the last 55 consecutive quarters.

Excellent financials and ample growth up ahead

Long-term fee-based contracts back nearly all MPLX's revenue stream, providing the company with very stable cash flow. Currently, the MLP distributes about 78% of that cash flow to investors, good for a comfortable 1.29 times distribution coverage ratio. On top of that, it has a strong investment-grade credit rating backed by low leverage metrics. Because of these three factors, the company's 7.1%-yielding payout is on rock-solid ground.

MPLX is currently on pace to increase its high-yielding payout by 10% versus last year's level. Supporting that forecast are a string of acquisitions and growth projects it completed in the past year. Meanwhile, the company has another $2.2 billion of expansions underway that should fuel further growth in the near term.

In addition to that, its parent company recently agreed to acquire a rival that owns a large portfolio of midstream assets that it could eventually sell to MPLX. Those factors position MPLX to continue increasing its high-yielding distribution at a high rate for the next few years.

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Just about to hit the accelerator

Fixed-fee contracts currently back about 86% of Crestwood's forecasted earnings for 2018, providing it with a stable base. The MLP expects to distribute less than 80% of that money to investors this year. Further, it has a solid balance sheet backed by a low leverage ratio and enough internal funding to support its current growth plan. Because of that, the company's 7.7%-yielding payout is on excellent footing.

Crestwood Equity Partners is in the midst of expanding its midstream footprint in several fast-growing regions. These expansions position the company to grow cash flow at a more than 15% compound annual rate on a per-unit basis over the next three years. That growing cash flow stream could enable the company to start increasing its already generous payout in the second half of 2018.

The best of both worlds

What makes this trio of 6%-plus yielders such appealing buys right now is that not only are those payouts on solid ground, but they appear likely to head higher in the coming years. That income with upside has the potential to fuel strong total returns for investors over the long term.

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Matthew DiLallo owns shares of Crestwood Equity Partners LP and Enterprise Products Partners. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.