Companies with high dividend yields offer the potential for both capital appreciation and income. High dividend yields are always attractive to investors who desire steady income in the form of dividend payouts. This article analyzes three companies that each have a dividend yield of more than 6%, and discusses how these companies will continue to provide high returns to the shareholders.
Leveraging and expanding the asset base
Boardwalk Pipeline Partners, LP (NYSE:BWP) designed its southeast market expansion project to increase the assets of its subsidiary, Gulf South. Under this project, 70 miles of new pipeline will transport natural gas in those areas of growing demand in the southeast region of the U.S. Fee-based contracts with an average period of ten years back the project. In the first quarter of 2013, the company received commitment from electric generation and industrial customers to add around 450 million cubic feet per day, or MMcfd. Boardwalk Pipeline Partners, LP (NYSE:BWP) secured an additional 100 MMcfd commitment in the second quarter of 2013, increasing the total project size to 550 MMcfd. The construction will start in the first half of 2014 and will begin service by the end of 2014. Despite the increase in project size, the estimated cost remains around $300 million, leading to better returns.
The project cost savings will drive Boardwalk Pipeline Partners, LP (NYSE:BWP)’s cash distribution to $2.19 per share in 2014 and $2.25 in 2015, compared to $2.13 in 2012.
Lowered financing requirements
In June 2013 Enbridge Energy Partners, L.P. (NYSE:EEP) exercised its option to decrease its interest from 40% to 25% in the Lakehead system project in order to enhance its liquidity position. The project will increase crude supply to the refinery markets in Eastern Canada and the U.S. Gulf Coast. Enbridge Energy will receive around $100 million from its general partner, Enbridge Energy Partners, L.P. (NYSE:EEP), in the second quarter of 2013 as a part of capital funded in these projects.
In May 2013, Enbridge Energy Partners, L.P. (NYSE:EEP) announced plans to purchase $1.2 billion of preferred units of Enbridge Energy Partners, L.P. (NYSE:EEP) Energy. The price of preferred units is $25 per unit with a fixed yield of 7.5%. In addition, there will be no payment of the quarterly cash distributions on these preferred units for the first eight quarters. The delay in cash distribution will save the company $180 million through the first half 2015. Currently, Enbridge Energy Partners, L.P. (NYSE:EEP) Energy has an $8.5 billion organic growth program in progress, which requires debt and equity financing.
The above two actions will reduce the funding needs of Enbridge Energy Partners, L.P. (NYSE:EEP) Energy for its growth program by $1.9 billion and will improve the liquidity position of the company in the near term. Enbridge Energy’s cash distribution per share will be $2.21 in 2013 and $2.25 in 2014.