Dividend stocks can be fantastic investments. They generate passive income for their investors that tends to grow over time. On top of that, many grow their earnings at a solid clip, which helps drive healthy stock price appreciation. Those two drivers can enable dividend stocks to produce strong total returns.
Black Hills(NYSE: BKH), Brookfield Renewable(NYSE: BEPC)(NYSE: BEP), and Brookfield Infrastructure Partners(NYSE: BIP)(NYSE: BIPC) stand out to a few Fool.com contributors as great dividend stocks. Here's why they think dividend-focused investors will love this income-producing trio.
Black Hills is an out of favor Dividend King
Reuben Gregg Brewer (Black Hills Corporation): If you compare Black Hills Corporation to utility giants such as NextEra Energy and Southern Company, it comes off looking like a pipsqueak, given its tiny $3.6 billion market cap. Just like Yoda from Star Wars, however, you shouldn't judge this utility by its size alone. Unlike those two industry giants, and other large peers such as Duke Energy and AEP, Black Hills reigns supreme on the dividend front given its status as a Dividend King.
BKH Market Cap data by YCharts
Meanwhile, Black Hills' dividend yield is near a decade high at 4.8%. It appears that this Dividend King is on sale today, which should be very appealing to dividend lovers. The one negative is that the utility's payout ratio is toward the high end of its target payout range of 55% to 65%. The long-term earnings target calls for 4% to 6% growth, so given some time that payout ratio will probably drop lower in the range.
This is a fairly boring utility, so there's not a lot to talk about. It reliably provides electricity and natural gas to around 1.3 million customers in regions of Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. However, the regions it serves are growing at around three times the average U.S. population growth. In other words, slow and steady growth in earnings and the dividend seems like a reasonable expectation. And if you buy the stock today, you can get both of those and a historically high yield.
A powerful dividend payer
Matt DiLallo (Brookfield Renewable): There are lots of reasons dividend investors will loveBrookfield Renewable. Topping the list is that the renewable energy juggernaut currently yields around 6%. That's several times above the S&P 500's 1.4% dividend yield.
Meanwhile, the company produces very sustainable cash flow. It sells most of the electricity it produces to utilities and large corporate customers under long-term power purchase agreements (PPAs). Those PPAs provide it with very predictable cash flow that steadily rises because it links power rates with inflation. That factor alone should grow its funds from operations (FFO) per share by 2% to 3% annually. On top of that, margin enhancement activities (e.g., renewable credits and ancillary products) across its existing portfolio will boost its FFO per share by another 2% to 4% per year.
Brookfield uses the cash flow it retains after paying dividends, its strong investment-grade balance sheet, and capital recycling activities (selling mature assets to fund new investments) to invest in growing its portfolio. The company expects to invest $7 billion to $8 billion over the next five years on high-return expansion projects and acquisitions. Its development pipeline should add 3% to 5% to its FFO per share annually, while M&A activities could boost its bottom line by over 9% per year. Add it all up, and Brookfield Renewable can easily grow its FFO per share by more than 10% annually through 2028.
That supports Brookfield's view that it can increase its high-yielding dividend by 5% to 9% per year. It has already delivered dividend growth of at least 5% annually for the last 13 years.
With a 6% yield, sustainable and growing cash flow, and a steadily rising payout, Brookfield is a great stock for those who like dividends to buy and hold for the long haul.
A high yield with lots of growth
Neha Chamaria(Brookfield Infrastructure Partners): With a 5.6% yield, Brookfield Infrastructure Partners, the infrastructure operating sibling of Brookfield Renewable, is a solid dividend stock to own. And it's not just the high yield that should appeal to income investors: This company has also grown its dividends consistently for 15 years now, and that growth streak and yield look sustainable, given where things stand now for the infrastructure giant.
Brookfield Infrastructure is firing on all cylinders. In 2023, the company grew its FFO by 10%. Except for its midstream energy segment, which reported a drop in FFO partly because of an asset sale, all of the three remaining segments -- utilities, transport, and data -- reported double-digit FFO growth last year.
While Brookfield Infrastructure strives to generate high returns from its existing assets, an integral part of its growth strategy is to sell assets as they mature and reinvest the proceeds into new acquisitions. In 2023, it deployed more than $2 billion and bought data centers and an intermodal logistics company, among others. That capital churn and FFO growth gave Brookfield Infrastructure enough leeway to comfortably increase its dividend by 6% last year, marking its 15th consecutive dividend raise.
One reason you'd want to consider Brookfield Infrastructure stock now is the company's growth path for 2024: It's targeting another $2 billion of capital recycling this year and is confident of meeting its long-term annual organic FFO growth rate of 6% to 9%. That also means Brookfield Infrastructure should be able to raise its dividend again by anything between 5% to 9% this year. Couple that with its high yield, and it makes for a tempting dividend stock.
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Matt DiLallo has positions in Brookfield Infrastructure, Brookfield Infrastructure Partners, Brookfield Renewable, Brookfield Renewable Partners, and NextEra Energy. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has positions in Black Hills and Southern Company. The Motley Fool has positions in and recommends Brookfield Renewable and NextEra Energy. The Motley Fool recommends Brookfield Infrastructure Partners, Brookfield Renewable Partners, and Duke Energy. The Motley Fool has a disclosure policy.
