Finance
3 Undervalued High-Yield Dividend Stocks to Buy Now and Hold Forever
Dividend stocks can be fantastic investments. Over the past five decades, dividend payers have outperformed the average S&P500 member (9.2% annualized total return compared to 7.7%). However, the best returns come from dividend growers (10.2% annually).
Black hills (NYSE: BKH), Phillips 66 (NYSE:PSX)And Clearway energy (NYSE: CWEN)(NYSE: CWEN.A) are under the radar dividend stocks. However, they stand out to a few Fool.com contributors for their higher yields and ability to increase payouts. That’s one of many factors that make them great dividend stocks to buy for a potential lifetime of dividend income.
Black Hills is the little engine that could
Ruben Gregg Brouwer (Black Hills): When it comes to utilities, most investors have probably heard of giants like NextEra Energy And Southern Company. But with a market cap of just under $4 billion, Black Hills is a small thing. And yet it has achieved a feat that neither NextEra nor Southern has achieved: Black Hills is a Dividend King.
Black Hills is a regulated electric and natural gas utility serving 1.3 million customers in parts of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. The company’s operations are pretty boring, but the regions it serves have seen customer growth at nearly three times the rate of U.S. population growth. Although the company is on the small side, it serves relatively attractive regions.
It also has material growth expectations, with a five-year capital investment plan worth about $4.3 billion expected to support earnings growth of 4% to 6%, with dividends growing at about the same pace.
Although that may not be exciting at first glance, add the dividend yield of 4.5%. That return is near the high end of the return range over the past decade, suggesting the stock is on a sell-off. But if the dividend grows along with earnings, which will likely lead to a similar rise in the share price to maintain yield levels, this boring Dividend King’s yield could quickly rise to around 10% (4.5% yield + 5.5% growth). = 10%). A market-like return from a boring utility stock? Well, that’s actually not boring at all!
A dividend share with a high octane content and a high return
Matt DiLallo (Phillips 66): Phillips 66 often flies under the radar of most investors. While it offers a high dividend yield of 3.3%, it’s not as high as other energy dividend stocks (although it is more than double the S&P 500’s 1.3% yield). Are refining and logistics matters is not the most exciting in the worldespecially in light of the current transition to lower-carbon energy.
That causes many investors to miss out on this great dividend stock. Phillips 66 has since increased its payout by 16% annually spinoff from oil giant ConocoPhillips in 2012, including 10% earlier this year. Are in the process of Between mid-2022 and the end of this year, $13 billion to $15 billion will be returned to shareholders through dividends and buybacks.
The payout should continue to grow. Despite Philips returning significant amounts to shareholders, Philips 66 is investing heavily in its future. This year it is spending $1.3 billion on organic growth projects. The company is balancing these investments between midstream projects to support the movement of hydrocarbons and lower carbon projects, such as the recently completed full conversion of its Rodeo Renewable Energy Complex. Moreover, the company Chemicals joint venture CPChem is investing heavily in expanding its capacity.
Phillips 66 also continues to make positive acquisitions. It bought Pinnacle Midstream for $550 million earlier this year to strengthen its midstream business in the Midland basin. Last year it spent $3.8 billion to buy most of DCP Midstream. These growth-oriented investments should give the country more fuel to grow its cash returns in the future.
Phillips 66 should continue to benefit from growing energy demand. It is also slowly shifting to low-carbon energy, which will improve its long-term sustainability and growth prospects (including the ability to increase the dividend). These characteristics make it an ideal dividend stock to own in the long run.
This dividend growth stock deserves attention
Neha Chamaria (Clearway energy): Utility stocks are often popular among income investors, but there’s one high-yield stock that doesn’t get much attention: Clearway Energy.
Clearway Energy is one of the largest renewable energy companies in the US and prioritizes dividend stability and growth. The company has paid a regular dividend since its initial public offering in 2013 and increased the dividend every year until 2019, when it was forced to cut its payout to preserve cash flows after a major customer went bankrupt.
However, Clearway Energy resumed dividend increases in 2020, proving its commitment to shareholders. Because Clearway Energy derives the majority of its revenue from long-term contracts, its cash flows are stable and predictable and can support regular and growing dividends.
Clearway Energy expects to increase its dividend by 7% this year and is confident it will reach the upper end of its annual dividend growth target of 5% to 8% through 2026. The company sold its thermal assets in 2022 and is using the proceeds to expand and strengthen its renewable energy assets, which should boost cash flows. The country also has no significant debt maturing until 2028 and is already working on growth projects beyond 2026, which should give the country more leeway to increase dividends every year.
With a high yield of 6.4%, supported by dividend growth, Clearway Energy is an undervalued dividend stock you might want to buy.
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Matt DiLallo has positions in Clearway Energy, ConocoPhillips, NextEra Energy and Phillips 66. Neha Chamaria has no position in any of the stocks mentioned. Ruben Gregg Brouwer has positions in Black Hills and Southern Company. The Motley Fool holds and recommends NextEra Energy. The Motley Fool has one disclosure policy.
3 Undervalued High-Yield Dividend Stocks to Buy Now and Hold Forever was originally published by The Motley Fool
