Earn a High Dividend Yield of about 7.3%
Income investors are always concerned about how an investment will provide a steady stream of income and protection from inflation. This would be a dividend growth stock that provides consistent growth.
The benefit from such an investment is that there is revenue growth in the company. This results in more money being available for reinvestment into the business, and more income for investors. Also, with growth in the dividend, there is then an income source that is protected from inflation. With growth in revenue and the dividend payout that it supports, the likely outcome is a higher stock trading price and less volatility over time.
One company that would fit into this investment criteria is TC Pipelines, LP (NYSE:TCP). TCP stock has increased its dividend in seven straight years. The dividend policy is reviewed annually within the company to ensure that the revenue supports a higher dividend.
TCP stock would be identified as a high dividend-yielding stock; its yield is around 7.3%. This is because the current average dividend yield of the S&P 500 index is 1.9%; any stock with a higher yield than the index would be known as a high dividend-yielding stock. In this case, the yield on TCP is 3.8 times the index average yield. The reason why this is used as the benchmark is that the stocks in the index are the 500-largest companies that trade on a major U.S. exchange. Further, the valuations of the companies are fairly evaluated because the companies are accessed by investors all over the world.
Why the Continuous Dividend Growth?
TCP stock is able to increase its dividend because of its operations. TCP is an acquisitor that participates in moving natural gas across the U.S. through pipelines. Energy companies will approach TCP and strike a deal to transport the natural gas to its final destination. There are multi-year contracts in place with a major clause in it. When TCP experiences added costs in its business operations, those costs get passed along to the end users.
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Added costs could be things like wage increases, regulatory due fees, and maintenance costs. At first, this would impact the margins of the business, but, since these costs are passed to the end users, the revenue margins are not harmed. Over time, this means that the top and bottom lines of the financial statements are positively affected. The evidence of this in the five-year revenue numbers, which went from $65.0 million in 2012 to $357.0 million in 2016. This represents revenue growth of 449%.(Source: “TC PipeLines L.P.” MarketWatch, last accessed August 7, 2017.)
That sounds like a great business from an investor’s point of view and, to make it even more appealing, TCP operates in an oligopoly competitive environment. This simply means that there is only a handful of companies that own market share along with TCP. It is very rare to see any new competition, because there is a lot of capital and a long regulatory process that must be completed. Since TCP already has its footprint in the transportation of energy, this is not a concern; rather, it’s a benefit. This is another reason why TCP stock can increase its dividend on a regular basis.
Also Read:
The Top 10 High-Dividend Stocks with Growing Payouts
Pipeline Stock List: Collect Reliable Dividends from These Pipeline Stocks
Final Thoughts about TCP Stock
TCP stock is my favorite high-dividend growth investment because of its consistency in rewarding shareholders, its easy-to-understand business model, and its protection from inflation.
Another benefit is that, with more time spent in the investment, a higher dividend yield would be calculated based on average purchase price. The advantage with this income investing strategy is that there is a faster return on capital that would be received, without the need to sell any shares owned.