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3 Dividend Stocks to Buy on Sale

By Matthew DiLallo - Nov 17, 2018 at 6:20AM

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These dividend stocks are all down more than 20% from their recent highs, making now a great time to buy.

This year has been a challenging one for investors due to the market's volatility. However, while the recent sell-off has taxed investors' patience, it has also opened up a number of opportunities for them to buy stocks at lower prices. Three that stand out are high-yielding pipeline giants Enbridge (ENB 0.95%), Energy Transfer (ET 0.40%), and Williams Companies (WMB 0.26%). They're all down more than 20% from their recent highs. 

Punished even though it's outperforming its plan

Shares of Canadian oil-pipeline giant Enbridge have tumbled about 21% from a recent high. Because of that decline, and a 10% dividend increase to start the year, shares now yield 6.3%. While that sell-off makes the dividend even more attractive, it's a head-scratcher otherwise given the progress Enbridge has made on its strategic plan this year.

A sale sign on a yellow paper price tag against rustic wood.

Image source: Getty Images.

One of Enbridge's goals heading into 2018 was to shore up its balance sheet by selling at least 3 billion Canadian dollars' ($2.3 billion) worth of noncore assets. The company, however, has already closed CA$5.7 billion ($4.3 billion) in asset sales and expects to receive another CA$1.8 billion ($1.4 billion) in the first half of next year. Meanwhile, it continues to build its expansion projects on time, and is thus on pace to achieve the high end of its earnings forecast. Given that outperformance, shares should have increased this year. Instead, they've lost value, which gives investors a chance to buy them for a bargain price.

The market has completely missed the improvements

The unit price of Energy Transfer has plunged about 23% from its high for the year even though the company is in a much stronger position now than it was at the beginning of the year. For starters, the company acquired its MLP in a deal that not only simplified its corporate structure but significantly improved the combined company's financial profile. Energy Transfer has not only lowered its leverage ratio to a stronger level, but it expects to cover its 8.2%-yielding distribution by a comfortable 1.7 to 1.9 times going forward.

That healthy coverage ratio will provide Energy Transfer with $2 billion to $3 billion of excess cash per year that it can use to help finance growth projects. Those funds will come in handy since the company currently expects to invest $5 billion in expanding its asset base next year, which should fuel high-octane earnings growth in the coming years. Finally, with a rock-solid yield at its currently lower price, the new Energy Transfer looks like a compelling buy these days.

A hand putting a coin on a stack.

Image source: Getty Images.

Pounded despite its success

Williams Companies has declined nearly 25% from its 2018 high. As a result of that sell-off, and a 13.3% dividend increase in the past year, shares of the natural gas pipeline giant now yield 5.4%.

As is the case with the others on this list, Williams' sell-off makes no sense, because the company has been having an excellent year. Not only are its earnings and cash flow expanding, but the company made several strategic moves to improve its financial profile and growth prospects, including acquiring its MLP, selling a noncore business, and signing new joint ventures to bolster its position in the DJ and Delaware basins. The company also completed one large-scale expansion while securing several other growth projects that will drive cash flow higher in the coming years.

Williams' successes in 2018 position the company to grow its dividend by another 10% to 15% in 2019. Meanwhile, the pipeline giant has secured new expansions that should drive continued cash flow and dividend growth in 2020 and beyond. That upside potential, when combined with Williams' rock-solid dividend, makes the recent sell-off look like a great buying opportunity for long-term investors.

Black Friday came early for income-seeking investors

The market has marked down shares of these pipeline giants even though all three are having good years. So dividend-focused investors can buy them on sale and lock in a better yield, and have a chance to capture the upside potential that all seem to have in front of them.

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Stocks Mentioned

Energy Transfer LP Stock Quote
Energy Transfer LP
$10.02 (0.40%) $0.04
Enbridge Inc. Stock Quote
Enbridge Inc.
$42.66 (0.95%) $0.40
The Williams Companies, Inc. Stock Quote
The Williams Companies, Inc.
$31.29 (0.26%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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