Are dividends your thing? Then you’ll love these 3 high-yield stocks.

By | March 19, 2024

Dividend stocks can be fantastic investments. They generate passive income for their investors that tends to grow over time. In addition, many are growing their profits strongly, which contributes to healthy share price appreciation. These two factors can help dividend stocks generate 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-oriented investors will love this income-generating trio.

Black Hills is a Dividend King that has fallen out of favor

Ruben Gregg Brouwer (Black Hills Corporation): If you compare Black Hills Corporation to utility giants such as NextEra Energy And Southern Company, it looks like a piece of cake given its small market cap of $3.6 billion. However, like Yoda from Star Wars, don’t judge this utility based on its size alone. Unlike these two industrial giants and other great peers such as Duke Energy And AEPBlack Hills rules in dividends, given its status as Dividend King.

BKH market cap chart

BKH market cap chart

Meanwhile, Black Hills’ dividend yield is almost a decade high at 4.8%. It looks like this Dividend King is on sale today, which should be very attractive to dividend enthusiasts. The only negative is that the utility’s payout ratio is at the high end of its target payout range of 55% to 65%. The long-term earnings target calls for 4% to 6% growth, so over time the payout ratio will likely be lower in the range.

This is a fairly boring utility, so there isn’t much to discuss. It reliably provides electricity and natural gas to approximately 1.3 million customers in the Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming regions. However, the regions it serves are growing at about three times the average U.S. population growth rate. In other words, slow and steady earnings and dividend growth seem like a reasonable expectation. And if you buy the stock today, you can get both and earn historically high returns.

A strong dividend payer

Matt DiLallo (Brookfield renewable): There are many reasons why dividend investors will love it Brookfield Renewable. At the top of the list is that the renewable energy juggernaut currently yields about 6%. That is several times above S&P500‘S 1.4% dividend yield.

Meanwhile, the company produces a very sustainable cash flow. It sells most of the electricity it produces to utilities and large business customers under long-term power purchase agreements (PPAs). These PPAs provide the country with a very predictable cash flow that steadily increases because it links energy rates to inflation. That factor alone should increase resources from operations (FFO) per share by 2% to 3% per year. Additionally, margin improvement activities (e.g. renewable credits and complementary products) in the existing portfolio will increase FFO per share by an additional 2% to 4% per year.

Brookfield uses the cash flow it has left over from 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 in expansion projects and high-return acquisitions over the next five years. The development pipeline should add 3% to 5% annually to FFO per share, while M&A activity could boost operating income by more than 9% annually. Add this 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-yield dividend by 5% to 9% per year. It has already achieved dividend growth of at least 5% per year for the past thirteen years.

With a 6% yield, sustainable and growing cash flow, and a steadily rising payout, Brookfield is a great stock for those who like to buy dividends and hold them for the long term.

A high yield with a lot of growth

Neha Chamaria (Brookfield Infrastructure Partners): With a yield of 5.6%, Brookfield Infrastructure Partners, the infrastructure business 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 consistently raised its dividends for 15 years now, and that growth and returns appear sustainable given the current state of play for the infrastructure giant.

Brookfield Infrastructure is firing on all cylinders. In 2023, the company grew its FFO by 10%. With the exception of the midstream energy segment, which reported a decline in FFO partly due to asset sales, all three remaining segments – utilities, transportation and data – reported double-digit FFO growth last year.

While Brookfield Infrastructure aims to generate high returns from its existing assets, an integral part of its growth strategy is selling assets as they mature and reinvesting the proceeds in new acquisitions. In 2023, it invested more than $2 billion and bought data centers and an intermodal logistics company, among other things. That capital turnover and FFO growth gave Brookfield Infrastructure enough headroom to comfortably raise its dividend by 6% last year, marking its fifteenth consecutive dividend increase.

One reason you might want to consider Brookfield Infrastructure stock now is the company’s growth path through 2024: It’s targeting an additional $2 billion in capital recycling this year and is confident it can maintain annual organic FFO growth over the long term. will achieve a growth rate of 6% to 9%. . That also means that Brookfield Infrastructure should be able to increase its dividend again this year by 5% to 9%. Couple that with the high yield and it makes for a tempting dividend stock.

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Matt DiLallo holds 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 holds positions at Black Hills and Southern Company. The Motley Fool holds 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.

Are dividends your thing? Then you’ll love these 3 high-yield stocks. was originally published by The Motley Fool

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