To build a seven-figure nest egg, saving money is essential. That’s the simple and perhaps obvious part of the story. The more interesting part is what you do with those savings. Investing is usually the right choice, but it’s also a complex decision. Here’s why millionaires might consider high-yield Enterprise Products Partners (NYSE: EPD), Enbridge (NYSE: ENB), and Magellan Midstream Partners (NYSE: MMP).
What to Do With Your Cash?
If you spend all your money, you’ll have nothing left to invest. But once you start saving, you need to put that money to work to build a million-dollar retirement fund. One way is to focus on growth stocks, which are expected to appreciate significantly over time. Another method is to buy value stocks that are currently undervalued but expected to recover.
A lesser-known but powerful wealth-building method is dividend investing—often considered a way to generate income from a nest egg after it has grown. However, dividend stocks can also play a crucial role in compounding wealth over time.
Assuming dividends aren’t cut, dividend investing offers a unique advantage: predictable returns. When you buy a dividend stock, you already know your initial yield. If that yield is high, you are well on your way to matching broader market returns. From there, capital appreciation becomes an added bonus. For example, Enterprise Products Partners currently yields around 7.2%. Since the stock market’s long-term average return is about 10%, Enterprise’s yield alone provides 72% of that performance!
The next step? Reinvest those dividends. Over time, you’ll keep purchasing more shares, and your nest egg will grow without lifting a finger. Building a seven-figure portfolio this way is a slow but steady process. However, if you’re not interested in constantly monitoring growth and value stocks, dividend investing can be a beautifully boring strategy—as long as dividends keep flowing and growing.
Reliable High Yields
Enterprise, Enbridge, and Magellan are pipeline companies that charge fees for using their energy infrastructure assets. They play a crucial role in global distribution networks for crude oil, natural gas, and refined products. Even when oil prices decline, demand for these companies’ services remains strong. That’s why:
- Enbridge has increased its dividend for 28 consecutive years.
- Enterprise has grown its distributions for 24 years.
- Magellan has increased its payouts every year since its 2001 IPO.
Considering the cyclical nature of the energy sector, this is an impressive track record. If history is any guide, these three companies should continue to generate reliable income for investors.
- Enterprise Products Partners (EPD): 7.2% yield
- Enbridge (ENB): 6.5% yield
- Magellan Midstream Partners (MMP): 7.4% yield
Key Considerations
While these stocks offer attractive yields, there are important nuances to consider:
1️⃣ Tax Structure: Enterprise and Magellan are MLPs (Master Limited Partnerships), which come with unique tax implications, including K-1 forms. Consulting a tax advisor is recommended. Enbridge, on the other hand, is a traditional corporation but is based in Canada, meaning U.S. investors may face foreign withholding taxes on dividends (potentially reclaimable during tax filing).
2️⃣ Business Differences:
- Magellan is the most focused of the three, with assets primarily tied to crude oil and refined product transportation (e.g., gasoline).
- Enterprise is much larger and more diversified, with notable exposure to natural gas.
- Enbridge is also large, but relies heavily on a few major pipelines. However, it also owns a natural gas utility business and has invested in renewable energy, positioning itself for the global transition to clean energy.
Don’t Underestimate the Power of Dividends
Ultimately, these three high-yield, reliable income-generating stocks can help you build a million-dollar portfolio one distribution at a time. While they’re not the only options, they represent three strong choices for income-focused investors.
You may not impress friends at dinner parties by bragging about owning dividend stocks, but you also won’t need to watch the market like a hawk. By reinvesting dividends and tracking payouts every quarter, you’ll be well on your way to a comfortable and happy retirement.
