The stock market has set several recent all-time highs this 12 months. Due to that, most stocks are up sharply, which is leaving fewer bargains.
Nevertheless, there are just a few stocks that also appear to be great deals. American Water Works (NYSE: AWK), Enbridge (NYSE: ENB), and Clearway Energy (NYSE: CWEN)(NYSE: CWEN.A) stand out to a few Idiot.com contributors straight away due to their compelling investment potential. Nevertheless, that may not last, which is why investors might need to scoop up these phenomenal dividend stocks before it’s too late.
A robust dividend growth stock
Neha Chamaria (American Water Works): American Water Works stock yields just a little bit over 2%. That dividend yield may underwhelm income investors, but even low-yield stocks may be great investments in the event that they’re paying regular and steadily rising dividends backed by earnings and cash-flow growth. You would be surprised to know that with reinvested dividends, American Water Works stock has greater than tripled investors’ money in only 10 years!
That is how powerful dividend growth stocks may be. And, with American Water Works stock’s one-year performance flat as of this writing, you could want to select up some shares before it’s too late. In spite of everything, its stable business model and attractive long-term financial goals are too compelling to disregard.
American Water Works has been around for greater than 135 years and is the most important regulated water and wastewater utility in North America today. It serves nearly 14 million people across 14 states and on 18 military installations. Because it’s a regulated business, American Water Works can generate stable and predictable money flows. And to grow its money flows, all it has to do is frequently spend money on its infrastructure to get rate hike approvals while grabbing acquisition opportunities on the go. For example, the utility expects to take a position $3.1 billion in infrastructure improvements this 12 months and has impending acquisitions value nearly $483 million.
Backed by regular rate growth and acquisitions, American Water Works expects to grow its earnings per share (EPS) by a compound annual growth rate of seven% to 9% in the long run. Here’s the very best part: the water stock also goals to grow its dividend in keeping with EPS, or by 7% to 9% per share every 12 months. Now that is solid dividend growth, and coming from a utility, ought to be protected and bankable. too.
Enbridge is providing the energy that is needed
Reuben Gregg Brewer (Enbridge): Enbridge will likely be lumped in with midstream firms. That is perfectly appropriate since 75% of its earnings before interest, taxes, depreciation, and amortization (EBITDA) comes from oil and natural gas pipelines. Nevertheless, that does not really do the business justice, because Enbridge’s goal is to offer the world with the ability it needs.
In actual fact, the remaining 25% of EBITDA is derived from natural gas utilities (22%) and renewable power (3%). Natural gas is predicted to be a transition fuel because the world shifts away from dirtier types of energy, like coal and oil. Renewable power, like solar and wind, is clearly the long-term direction of the energy sector, though it continues to be a comparatively modest contributor to the worldwide grid today. The plan is to maintain shifting the combo toward cleaner alternatives as demand increases.
That is the business that backs Enbridge’s dividend, currently yielding 6.8% and underpinned by an investment-grade-rated balance sheet and a distributable cash-flow payout ratio that’s comfortably inside management’s goal range. The business model has supported the 29 annual dividend increases the corporate has racked up. Here’s the thing, Enbridge’s yield had been over 7.5% just a short time ago, before the stock began to rally. Mainly, investors are starting to understand Enbridge’s business approach a little bit more. If that continues, the still attractively high yield here may not last for much longer.
This sale might be about to finish
Matt DiLallo (Clearway Energy): Shares of Clearway Energy currently sit about 30% below their high from early 2022, right before the Federal Reserve began boosting rates of interest. Higher rates have made it costlier for firms to borrow money, which has slowed growth. Rising rates have also weighed on the worth of higher-yielding dividend stocks like Clearway. Their stock prices decline to make their dividend yields rise so that they are more enticing investments in comparison with lower-risk options like bonds. In Clearway’s case, its sell-off has driven its dividend yield up to just about 6%.
That prime yield might not last much longer. The Federal Reserve appears poised to start out lowering rates of interest. Because it does, the share prices of high-yielding stocks like Clearway should rise as they gain investor favor, causing their yields to fall.
That catalyst adds to Clearway’s compelling long-term total return potential. The clean power producer plans to grow its dividend toward the upper end of its 5% to eight% annual goal range through 2026, an exceptional growth rate for such a high-yielding stock. Powering that plan is its capital recycling strategy. It sold its district thermal business just a few years ago and has been redeploying the proceeds into higher-returning renewable energy investments. It recently signed deals to deploy the remaining proceeds from that sale, giving it clear visibility to realize its current dividend growth goal.
The corporate is already working toward extending its growth visibility into 2027 and beyond. Recent contract renewals for its natural gas power plants are coming in at a level that might power dividend growth toward the low end of its goal for 2027. As well as, the corporate has made offers to amass additional renewable energy assets that it could actually fund with its existing financial capability. Meanwhile, if rates of interest fall, it could actually externally fund acquisitions again, which could enable it to grow faster in the longer term.
Investors currently have the chance to lock in Clearway’s high dividend yield while rates of interest remain high. On top of that, Clearway offers high upside potential from a future recovery in its stock price as rates fall, and it could actually speed up its growth rate.
Do you have to invest $1,000 in Enbridge straight away?
Before you purchase stock in Enbridge, consider this:
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Matt DiLallo has positions in Clearway Energy and Enbridge. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has positions in Enbridge. The Motley Idiot has positions in and recommends Enbridge. The Motley Idiot has a disclosure policy.
3 Phenomenal Dividend Stocks to Buy Before It’s Too Late was originally published by The Motley Idiot