Dividend stocks are nice to own in any kind of market. After all, who doesn't like getting quarterly checks in the mail? But dividend stocks are especially appealing when interest rates are falling like they are now. That's because fixed-income investors tend to rotate back into dividend stocks as yields fall, which benefits dividend stocks as their prices tend to rise as more investors move back into the stocks.
With the new rate-cutting cycle just beginning, investors who buy dividend stocks now can take advantage of the upcoming rotation. On that note, let's take a look at the three highest-yielding dividend stocks on the Nasdaq-100 index and see if any of them are worth buying.
Image source: Getty Images.
1. Kraft Heinz (dividend yield: 4.6%)
Kraft Heinz (NASDAQ: KHC) has struggled since it was formed by a merger nearly a decade ago with the help of Warren Buffett's Berkshire Hathaway. The packaged food giant has seen little growth since the merger and was forced to take a write-down of $15.4 billion on core brands like Oscar Mayer in 2019.
While the business and the stock have been mostly flat over the last five years, Kraft Heinz remains highly profitable thanks to its portfolio of well-known brands. It currently offers a dividend yield of 4.6%. Kraft Heinz cut its dividend back in 2019 at the same time it announced the impairment above.
Since then, the company has not raised its dividend, and its recent earnings report shows why that's unlikely to happen soon. Revenue in the second quarter fell 3.6% year over year and adjusted earnings per share was down 1% to $0.78.
Given the weak growth in both the business and the dividend, Kraft Heinz stock is best avoided. While a 4.6% yield is appealing, investors can do better elsewhere.
2. Diamondback Energy (dividend yield: 4.7%)
Energy stocks are rare on the Nasdaq Stock Exchange, but they are known for being generous dividend payers. So it's not surprising to see Diamondback Energy (NASDAQ: FANG) here.
Diamondback is an exploration and production oil and gas company focused on the Permian Basin in Texas and New Mexico. Like the rest of the energy sector, Diamondback is sensitive to oil and gas prices. Reports that OPEC will soon raise production have weighed on oil prices recently, though elevated tensions in the Middle East have also pushed them higher.
The company just acquired Endeavor Energy Resources for $26 billion, meaning integrating it will be its primary focus. The share dilution in the deal could also pose a headwind on dividend growth. After that acquisition, it's now the third-largest producer in the Permian, and it should benefit from increased scale and reduced costs over the long term.
The company delivered solid results in its second-quarter earnings report, and it has a variable dividend policy, meaning its dividend varies with its profits from quarter to quarter. If the company can capitalize on the Endeavor deal and oil prices stay elevated, it should be a good dividend stock to own.
3. Exelon (dividend yield: 3.8%)
Like with oil and gas, the utility sector isn't well represented on the Nasdaq, but Exelon (NASDAQ: EXC) is a rare Nasdaq utility stock.
The company owns several subsidiary utilities, primarily in the mid-Atlantic and Illinois, and it's been able to deliver steady growth, benefiting from rate increases, favorable weather, and investments to increase peak load at ComEd.
Exelon posted impressive growth in the second quarter with revenue up 11% to $5.4 billion, and its margins expanded as it controlled overhead costs with earnings per share up from $0.34 to $0.45.
Exelon has raised its dividend for the last two years in a row and seems likely to continue that streak given the current strength in the business, and there's room to raise it as Exelon's dividend payout ratio of 61%.
At a dividend yield of 3.8%, Exelon looks like a solid bet for a steadily growing dividend stock.
Should you invest $1,000 in Exelon right now?
Before you buy stock in Exelon, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Exelon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $814,364!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of October 7, 2024
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends Kraft Heinz and Nasdaq. The Motley Fool has a disclosure policy.
