2 Dividends I Love and 1 That Should Go Away: ConocoPhillips (COP)

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”
– John D. Rockefeller.

Ah, dividends, those wonderful returns of cash flow to investors. While I’ve certainly found more to life than dividend checks, I must admit that I’m quite fond of those quarterly payouts. I’m especially fond of payouts that are sustainable and will likely go higher over time. Here’s two of my all-time-favorite dividend payers and one that shouldn’t even be playing this game.

Don’t cut out this middleman
I’ve owned units of midstream giant Enterprise Products Partners L.P. (NYSE:EPD) for more than half a decade. Over that time the company has raised its distribution every single quarter. Because of this I’m now enjoying a 10% yield on my original investment while those buying units today would start with a 4.7% payout.

There are a couple of things you need to know about Enterprise. First, that distribution could be as much as 30% higher each quarter if the company didn’t hold back cash to grow its business. That tells me that the distribution is secure. Second, the company has $7.2 billion in growth projects under construction. What this tells me is that when those projects are complete the company will throw off more cash that can be distributed to investors. I love a secure and growing payout – Enterprise has both.

Fill up on this deep value
Like Enterprise, I’ve owned ConocoPhillips (NYSE:COP) for the better part of the past decade. While the company hasn’t been as consistently generous in increasing its payout, I think its future payouts are likely headed higher. The company has been in the midst of a major repositioning which included the spin-off of Phillips 66 (NYSE:PSX). That transaction has unlocked major value for investors as Phillips 66 has not only initiated its own dividend but already raised it a couple of times.

ConocoPhillips is a company that is not just trading at a deep value but comes with upside from several growth projects the company is developing. As those projects come online they’ll help Conoco grow both production and margins by 3%-5% annually. To go along with the balance of value and growth is the company’s sector-leading dividend. The company has decided that it will pay 20%-25% of its cash flow to investors, meaning that as Conoco grows, so will that payout. In the meantime new investors can pick up its very secure, and soon to grow, 4.5% yield.