2 dividend stocks I'd buy now – The Motley Fool

While growth stocks make the headlines and generate all the hype, dividend paying stocks have largely outperformed their non-paying peers over the years, with dividend growth stocks leading the charge. That is why I have built my portfolio on income producing securities and I am always on the lookout to strengthen this foundation by investing more money in dividend payers.

Two companies I am currently monitoring are natural gas giants Kinder Morgan (NYSE: KMI) and Williams Companies (NYSE: WMB) . Not only do both offer high yield dividends – 4.5% and 5%, respectively – but these payments are expected to increase at high rates in the coming years. The kicker: These stocks are trading at attractive prices right now.

The dividend is big, but the valuation C is even better

Although I already have a cargo of Kinder Morgan, I think to add to my position because of all the positives I see for the pipeline giant. After years of consolidating its financial situation, Kinder Morgan has opened the taps and started giving back more money to investors this year by increasing its dividend by 60%. However, even at this much higher rate, Kinder Morgan pays only 40% of its expected cash flow, which is very low for a pipeline company. For this reason, Kinder Morgan plans to further increase its payments by 25% next year and at the same pace in 2020, which is the best predictor of dividend growth in the pipeline sector.

Although this fast-growing, high-yielding payment is reason enough to consider buying Kinder Morgan's securities these days, which puts it at the top of the list, it's its valuation. The pipeline giant is currently trading less than nine times its cash flow, which is inexpensive compared to its rivals – the average stock of a pipeline is trading at around 12 times the cash flow. So, Kinder Morgan offers a compelling mix of income and growth at a greatly reduced price, which could be the ticket needed to deliver outsize returns in the coming years.

A solid income stock that is now on sale

Williams Companies has been one of the least performing energy stocks so far this year, losing about 10% of its value. As a result, Williams' valuation has fallen to about 12.5 times the cash flow, which is around the peer group average. Although it is not as attractive as Kinder Morgan on this front, Williams still holds a lot of attraction in all.

To begin with, Williams made several moves during the year to consolidate its financial position, notably by announcing recently the acquisition of its MLP Williams Partners (NYSE: WPZ) . This transaction will not only simplify Williams' organizational structure, but will also improve its credit profile and dividend coverage, which will strengthen the fundamentals of its high-yielding dividend.

Once this transaction is concluded, Williams' dividend will consume only 63% of its cash flow, which is prudent for a pipeline stock. Meanwhile, with several major expansion projects underway, Williams expects to be able to increase its dividend by 10% to 15% in 2019, while paying less than 60% of its expected cash flow.

With profits and dividends growing at a double-digit pace next year, and large-scale expansion plans to fuel rapid growth beyond 2019, Williams could generate annual returns totals among young people from here. This market yield potential places it on my short list of dividend stocks that I would consider buying right now.

It's a tough choice

I'm currently weighing my options in considering my next dividend purchase. Leading the list are Kinder Morgan and Williams Companies, as both companies have strong payouts that they plan to grow at a steady pace in the future. Although I am leaning towards buying more Kinder Morgan because its lower valuation could generate higher total returns in the coming years, Williams also has significant upside potential. Both look like big dividend stocks to buy right now.