- For 2026, Barron’s argues income investors may prefer dividend-paying equities over bonds as after-tax, inflation-adjusted yields look less compelling.
- Midstream energy/pipeline names such as MPLX, Energy Transfer, Enterprise Products Partners, Western Midstream, and Kinder Morgan are highlighted for high payouts supported by fee-based contracts and rising gas demand from LNG and AI/data centers.
- Other income picks include BDCs, REITs, telecoms, and dividend stalwarts like Coca-Cola and Merck to balance yield with defensiveness.
- Key risks include inflation and rate swings, leverage and execution in big projects, commodity and credit stress, and MLP tax complexity (K-1s).
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According to Barron’s “Best Income Ideas for 2026,” income investors should favor equities over bonds in the coming year. Despite 2025’s strong performance by traditional 60/40 portfolios—S&P 500 up nearly 20% and bonds +7%—dividend-based strategies underperformed. International dividend stocks delivered ~30% returns in 2025 and are viewed as particularly attractive going into 2026, due in part to favorable currency trends.
Energy/Infrastructure Theme: Midstream energy and pipeline companies are central to the income thesis. Barron’s highlights MPLX and Energy Transfer as key U.S. pipeline picks. Kinder Morgan forecasts ~8% upside in EPS for 2026 vs 2025, plans ~$3.4 billion in discretionary capex (up from $2.3 b in 2025), and expects to maintain its annual dividend at $1.19, continuing its streak of dividend increases. Natural gas demand, especially from LNG exports and AI/data center loads, is driving tailwinds.
Other sources identify standout yields: Energy Transfer is yielding ~8%, with its distribution growth target of 3-5% and exposure to natural gas pipelines tied to data centers and energy demands. Enterprise Products Partners offers ~6.8% yield plus a decades-long track record of increasing distributions; Western Midstream yields ~9.2% with recent M&A boosting its infrastructure footprint. These offerings are praised for operating leverage, long-term contracts, and fee-based income models that make them less sensitive to commodity swings.
Other High-Yield Income Ideas: BDCs such as Ares Capital (yield ~9.5%) and PennantPark Floating Rate (~13-14%) offer exceptional yields, but come with higher risk via credit exposure and economic sensitivity. REITs like Realty Income (yield ~5-6%) and Starwood Property Trust (~10.3%) gain attention for long lease durations, rent escalators, and income stability. Telecoms such as Verizon (≈6.7% yield) and AT&T are valued for reliable cash flow and dividend history. Consumer staples and dividend aristocrats (Coca-Cola, Merck, etc.) are seen as defensive (lower beta) and capable of preserving income across cycles.
Strategic Implications for Portfolios: An income-oriented portfolio for 2026 may need to balance higher-yield, higher-risk exposures (midstream pipelines, BDCs, high-yield REITs) with lower‐risk, lower-growth but more stable yield plays (utilities, telecoms, dividend aristocrats). Tax and structural considerations matter: MLPs/MLPs vs corporations differ in investor tax burden; K-1 forms add complexity. Inflation protection—via pipelines with inflation escalators, consumer staples with pricing power, or real estate with lease escalators—is key. Monitoring federal rate policy and inflation remains essential, as well as company leverage and execution risk in large energy infrastructure projects.
Open Questions:
- Can interest rates meaningfully decline in 2026, improving bond alternatives and tightening equity yield spreads?
- Will regulatory, tax, or environmental pressures increase costs or constraints for energy pipelines?
- How resilient are BDCs, high-yield REITs, and telecoms to macroeconomic shocks, inflation, and credit tightening?
- What is the impact of demand from AI/data centers for power and gas, and how reliable are contracts underpinning infrastructure investments?
Supporting Notes
- Barron’s reports that income investors should favor equities, including high-yield U.S. dividend stocks, pipeline companies (MPLX, Energy Transfer), REITs, and telecoms like Verizon and AT&T for 2026.
- Kinder Morgan expects its 2026 earnings per share to be $1.37, roughly 8% higher than its 2025 forecast, plans $3.4B in discretionary capex, and will maintain a $1.19 annual dividend.
- Energy Transfer yields nearly 8.1%, with 2026 capex planned at around $5B, targeting growth via infrastructure tied to AI and natural gas pipelines.
- Enterprise Products Partners offers ~6.78% yield with a 27-year streak of growing distributions; fee-based contracts shield it from price volatility.
- Western Midstream yields ~9.21%; recent acquisition (Aris Water Solutions) and expansion projects like the North Loving water pipeline (to operate in early 2027) enhance infrastructure scale.
- Ares Capital (a BDC) yields ~9.5%, with 65 consecutive quarters of maintaining or growing dividend; Energy Transfer’s forward distribution yield ~8.2%.
- Realty Income (a REIT) yields ~5.64%, with a 99% occupancy rate and consistent dividend increases; Starwood Property Trust yields ~10.3%.
- Non-energy staples: e.g., Coca-Cola and Merck are noted among high-yield, defensively positioned dividend stocks with strong dividend growth history.
- Tax/tax-structure risk: many pipeline firms structured as MLPs require pass-through tax treatment (K-1s), complicating tax planning; there is movement to convert some to C-corporations.