Investment Opportunities with Dividends: Retirees Shouldn't Overlook These Great Deals
Hey there! I'm here to help you dip your toes into the world of retirement income investments, focusing on two potential picks that might be quite intriguing: Energy Transfer (ET) and Realty Income Corporation (O).
Buying defensive securities at high valuations isn't always the best solution for retirees, as they often have an imbalance between their desired retirement income and the available capital to achieve it. This is where Energy Transfer and Realty Income come in, offering higher yields that could help bridge the gap.
Let's break it down.
Energy Transfer (ET)
ET is a midstream infrastructure business that excels in offering high and sustainable income streams. It has a strong competitive advantage in the natural gas segment, which is more attractive than typical crude oil exposures. However, ET has received some harsh treatment from the market due to lower commodity prices and uncertainties surrounding natural gas export terminals and international partners.
As a result, ET's EV/EBITDA has dipped to 8.4x, which is significantly lower than other competitors like Enterprise Products Partners L.P. (EPD), MPLX LP (MPLX), and Plains All American Pipeline (PAA). The reduced multiple has boosted the distribution yield to 7.3%, making it an enticing option to lock in, especially if you factor in its growth prospects.
ET is still in a growth phase, with EBITDA generation increasing quarter by quarter. Moreover, around 90% of its top-line stems from fee-based agreements that are inflation-linked, long-term, and backed by strong counterparts. And with a significant part of the CapEx spend earmarked for natural gas projects, ET is poised to capitalize on its unique natural gas footprint on U.S. soil.
Realty Income Corporation (O)
Next up, we have Realty Income Corporation (O), which has seen a significant decline in value since mid-2022. This was primarily due to increasing interest rates. However, O's valuation bleed hasn't significantly impacted its underlying cash flows. Currently, O is trading roughly 37% below its peak P/CF multiple in January 2022 and is offering almost the 10-year highest dividend yield level.
What makes O even more interesting is that it has an upper investment-grade credit balance sheet—a rarity in the REIT space. This provides multiple advantages such as lower cost of capital, access to flexible financing, and an embedded margin of safety (liquidity angle). Apart from this, O has a robust fundamental base, with conservative FFO payout, long-term lease maturity, lease escalators, diversification into defensive gaming and industrial properties, and presence in the EU and U.K. markets.
In a nutshell, both Energy Transfer and Realty Income could be attractive retirement income picks that are currently available at bargain prices. However, it's essential to remain cautious when seeking high yields, as it often comes with heightened risk. So, always keep a margin of safety in mind, diversify, and be patient for true retirement income gems to appear in a bargain territory. Happy investing!
- For individuals seeking to balance their retirement income with available capital, considering investments like Energy Transfer (ET) and Realty Income Corporation (O) could be advantageous, as they offer high yields to bridge the gap.
- In the context of retirement finance and personal-finance management, Energy Transfer (ET), a midstream infrastructure business, has attractive growth prospects, a high distribution yield, and a focus on fee-based agreements, making it a potential choice for income-focused investors.
- Realty Income Corporation (O) is another possibility for retirement investors, offering almost its 10-year highest dividend yield level, an upper investment-grade credit balance sheet, and a robust fundamental base. However, it's crucial to exercise caution when seeking high yields, as such investments might come with heightened risk.
