For most investors, building a million-dollar retirement portfolio requires making a lot of good decisions over a long period of time. The first one is to live below your means and save (and invest) what you don't spend.
What you do with the money you save, however, is very important too. Buying high-yielding stocks like Enbridge(NYSE: ENB), Black Hills Corporation(NYSE: BKH) and Devon Energy(NYSE: DVN) could be just the foundation you need to get to that seven-figure goal. Here's a look at each.
1. Collect fee-backed dividends from Enbridge
Enbridge operates in the energy sector, where oil and natural gas prices can lead to dramatic swings in financial performance. But the Canadian company's business is largely shielded from commodity prices because it charges fees for the use of the energy infrastructure assets it owns, like pipelines. It doesn't matter if oil prices are high or low, the fuel still has to be delivered to market, and that keeps demand resilient for Enbridge's business.
However, Enbridge isn't just a pipeline stock. Over the years it has been increasingly diversifying its business. The first step of that was to move from a heavy focus on oil infrastructure to include more natural gas infrastructure. Natural gas is considered a transition fuel as the world increasingly goes green. The company has also been building a natural gas utility business, most recently by agreeing to buy three gas utilities from Dominion Energy(NYSE: D). And it also owns a small but growing portfolio of renewable power assets (like offshore wind).
The company's hefty 7.5% dividend yield, meanwhile, is backed by 28 years of annual dividend increases and an investment-grade-rated balance sheet. The hefty yield, which is likely to make up the vast majority of your return, gets you three quarters of the way to the around-10% historical return of the broader stock market. That's not a bad starting point for a more conservative investor.
2. Add a Dividend King to the foundation
Black Hills Corporation is a regulated utility with exposure to natural gas distribution and electricity assets. Being regulated means that it has been granted a monopoly in the markets it serves, but that it has to get its rates and investment plans approved by the government. This tends to result in slow and steady growth over time.
Black Hills is a Dividend King, with over 50 years of annual dividend increases behind it. And over the past one-, three-, five-, and 10-year periods the dividend has grown at a roughly-5% annualized clip. That's impressive consistency.
Black Hills isn't meant to be an exciting stock. It is a reliable, foundational investment. This one just happens to be backed by utility operations in regions that are growing nearly three times as fast as the broader U.S. population. More customers means more slow and steady growth, because regulators are incentivized to ensure reliable power is available. Black Hills will need higher rates and more capital spending to get that done. Meanwhile, its 4.6% dividend yield is near the highest levels of the last decade, suggesting that the stock is attractively priced today.
3. An option that requires a bit more thought
Sticking with the broader energy theme, you might also want to consider Devon Energy. This company produces oil and natural gas in the continental United States. Its top and bottom lines are basically driven by energy prices. So financial performance can be highly volatile. That might turn off a lot of investors, since the stock price typically rises and falls along with these vital global commodities. But there's an interesting wrinkle.
Devon Energy's dividend is tied to its financial performance. That means that the dividend will tend to rise when energy prices are high and fall when energy prices are low. Some will find that undesirable -- who wants to see a dividend get cut? But the dividend you collect here will likely be going up just when you might be facing rising prices for heating your home and filling your car up with gasoline. That can provide a hedge against rising real-world energy prices. In other words, it provides an inflation hedge of sorts to protect your buying power, supporting your ability to save money instead of spend it.
This won't be a great fit for everybody, but more active investors might appreciate this vital dividend nuance as they work toward millionaire status. The yield today is a lofty 6.2%, but that will change given the variable dividend policy currently in place.
A portfolio approach is needed to get to $1 million or more
Most investors looking to build a millionaire-level nest egg will be better off creating a diversified portfolio. Adding some reliable income stocks, like Enbridge and Black Hills, should provide a strong foundation. Meanwhile, a unique dividend stock like Devon Energy not only adds diversification, but also a hedge against the real-world impact of energy price volatility. You'll need more than these three stocks, of course, but each can help you in an important way on your quest to become a millionaire.
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Reuben Gregg Brewer has positions in Black Hills, Dominion Energy, and Enbridge. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
