In this episode of Industry Focus: Energy, host Nick Sciple is joined by Motley Fool contributor Matt DiLallo to review their 2020 dividend stock picks, and share some dividend stocks to consider in 2021. 

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This video was recorded on Jan. 21, 2021.

Nick Sciple: Welcome to Industry Focus, I'm Nick Sciple. This week, we're looking at dividend stocks. Motley Fool contributor Matt DiLallo joins me to give an update on our top dividend stock picks for the year 2020 and share a couple of picks for dividend stocks to buy for 2021. Matt, thanks for joining me on the podcast once again.

Matt DiLallo: Hey, thanks for having me again.

Sciple: Great to have you back on. As I mentioned, we're going to be taking a look back at some dividend stocks that we pitched back on January 23rd, 2020, so about a year ago, see how those performed and take a look at a couple more dividend stocks that we might want to look at for 2021. Before we get into that, Matt, I know you're someone who invests in a lot of dividend stocks. It's a big part of your portfolio. Why are dividends an important part of your investing process?

DiLallo: One of the early things I've learned is that dividend stocks, especially those that could grow their payouts consistently, they tend to outperform other stocks, so that just stuck with me early on. It's just so nice to get paid for something you didn't do. It's like the first paycheck I got, I think it was Procter & Gamble, maybe $0.30 or something, really small. But to see that payment in my portfolio, just stuck with me and I've been investing in dividends ever since.

Sciple: Absolutely. Like an analogy, I've just been kicking around in my brain recently, you know when you're a kid, and you play kickball, and there's not enough people to play the game, so you have ghost runners on base? You've got to knock the ghost runners out. I keep thinking about that as like investing. This money I worked, I put it away. I get to put these ghost runners on base and sometimes you get dividends. Those runners are coming home and you get that cash. That's the way I've been thinking about it. When you're looking for a dividend stock, Matt, what are some traits you look for? What are the criteria you're looking at?

DiLallo: My dividend strategy has changed over time, because I've learned from all the mistakes that I've made as an investor, one of the early ones was yield. If you saw a 10% yield, I would think in my mind, that's great. I just sit back and collect the dividend. I don't have to worry about capital appreciation. But there's usually a reason for those bigger yields and I've had enough of those blow up over time to realize that yield isn't the first thing to look for, sustainability, durability, and more importantly, growth. As I mentioned, stocks that grow their dividends every year, there's been several studies out there that they tend to outperform the S&P 500. I've focused more on what companies can grow their dividends, not focusing so much on yield, but is this durable? That strategy's really paid off, especially this year. A lot of companies cut their dividends, but some of those that are really focused on that durability, they really shined this year.

Sciple: Matt, that gives us a nice transition to talking about those stocks that we talked about back on the January 23rd, 2020 episode. We're going to do this in alphabetical order. I basically ripped it a page right out of David Gardner's book. He always goes through his five stock samplers in alphabetical order and gives you a comparison against the market. The first one in alphabetical order is Brookfield Infrastructure Partners (NYSE:BIP), ticker BIP. Since January 2020, up 14% in total return. These are dividend stocks, we want to look at total return lumping in the dividend. Trailing the S&P by just a little bit, S&P 17.9%. What can you tell us about what Brookfield Infrastructure does and what's happened to them over the past year or so?

DiLallo: Brookfield Infrastructure, as the name implies, they own a bunch of infrastructure. In this case, they own pipelines, they own cell towers, data centers, all these backbone type things that you need to function the economy. They own those, and operate those, and they sign long-term contracts with governments and with companies. Those contracts pay them steady cash flow, and that's what they use to support the dividend. They've just really been a great company to own over the years, because we've learned how important infrastructure is to the economy and they've been on the forefront of bringing something out there for retail investors like myself to own this infrastructure that is just great long-term investments.

Sciple: These are the things that are the arteries of the economy and things like that. You mentioned a couple of big acquisitions this year. Can you tell us about those?

DiLallo: Brookfield, a lot of their growth is by acquisition. They bought cell towers in India, that was a big acquisition for them. They partnered with one of the big Indian telecom companies, bought a huge portfolio. It's backed by long-term contracts, and that's very important for mobile data. As we know in the United States, we use mobile data all the time with our cellphones, you're always checking videos when you're standing in line at the store or that sort of thing. This one's in India. The other thing was they bought a stake in Cheniere Energy Partners, which owns a big liquefied natural gas export facility in Louisiana. It's the first one that was ever built for export to the lower 48 states. They bought that stake from Blackstone Group, who really helped finance the construction of that product, and they want to monetize it. Two massive acquisitions, I think they've spent $1 billion total for that. Great businesses draw lots of cash, that's great for this dividend which is probably the main reason I'm buying Brookfield.

Sciple: When you talk about the cell towers, obviously, with 5G coming on board, more and more demand for densification of those towers. Then on the LNG side, we saw a lot of strong performance in LNG this year, Matt. Does that say something about maybe they had some great timing with these acquisitions?

DiLallo: Well, that's what's so great about Brookfield, they'll look for dislocations in the market. When times are tough, that's when Brookfield will go and buy stuff. Earlier this year, the energy market just went down the toilet and that's when Brookfield was out there looking for these types of acquisitions. They got a really good deal on Cheniere because at the time, LNG prices were low and they didn't know what was going on. But LNG is just so vital for this bridge fuel transition to renewable energy. It's so much cleaner than oil, and we can use it to generate power, and to do a lot of things. It's a great business backed by long-term contracts. But there is some upside to the LNG prices too with that structure. It was just great timing. I think it's going to be a good long-term deal for them.

Sciple: We'll see what happens with Brookfield Infrastructure on those deals. As we look out into 2021, what are the prospects for the dividend to increase over time and deals on the horizon for them?

DiLallo: Last year, Brookfield actually did pretty well despite the pandemic. They're going to be up on the year, which is really surprising, because they do have some economically sensitive businesses and toll roads in South America, and then they've got some railroads and ports. But as those bounce-backs, like the headwinds are going to be turning into tailwinds, you've got that. Then they expected that deal for the cell towers to close earlier in the year. It didn't close later in the year. That's going to be a benefit, the LNG deal. They could actually grow their earnings 20% this year, which is really a lot when you're thinking about a slow low-risk company, that's a lot. There is a lot of organic growth too, though. They bought businesses that they can do some expansion projects on. I think this is going to be a good year for their earnings and then dividend, they're targeting 5%-9% per year. I think they did 7% in 2020. I would say 7% would be a safe bet this year. If you have earnings growing at 20% and dividend growing only at 7%, that's going to make the dividend safe for a long-term.

Sciple: When we got a new administration in place, there's this joke of it's always infrastructure week or maybe infrastructure week is coming once again here in 2021. Last thing before we move on from Brookfield Infrastructure, we always get the question about Brookfield Infrastructure Partners, that's ticker BIP. They've also come out with Brookfield Infrastructure Corporation (NYSE:BIPC), ticker BIPC, there's been a little bit of a difference in performance of those BIPC shares relative to BIP, also difference in the corporate form. Can you just walk us through the puts and takes of owning those two different entities as an individual investor?

DiLallo: Yes. Brookfield Infrastructure Partners, BIP, that's basic, a master limited partnership. There's IRS regulations behind that of how much they have to pay out of the cash flow, and it's been a very popular energy sector in all past couple of years. But retail investors have moved away from that because MLPs themselves blew up because of the oil market downs. That's how Brookefield backed retail investors just don't like that structure. I can personally vouch for it. It's called the schedule K-1. It'll come sometime in late March, and if you want to do your taxes, you have to wait for that. It can impact getting a mortgage. I know for myself I had a couple of issues. I had to explain away that, no, I'm not an actual partner in a law firm. It's a publicly traded company. There's been those issues. Levy of those issues, Brookfield is creating corporations that just make it easier for the average investor to buy that and in IRS specifically, because a lot of IRS won't let you own a master limited partnership. It just opens them up to this whole extra industrial universe. That's really why you've seen that relative outperformance, because just the average side of investor that prepares a great company, this is a way that they can own it. It's been a really good idea for them.

Sciple: Maybe you've seen some people selling the BIP shares and buying the BIPC shares incrementally. You have more demand for those BIPC shares from certain shareholders. I think over the long-term, we'd expect those to trade relatively near to each other, if not identically based on the assets that are underlying, correct?

DiLallo: You would think so, but I think taxes will play a role in it. Some of the reasons that MLPs have underperformed is because the Trump tax cuts a couple of years ago made corporations, there wasn't such a big gap between corporate taxes and the MLPs that have these taxes. For example, if President Biden raises corporate taxes, that might make MLPs attractive again, and you can actually see it shift. Or you can just see investors just like, I don't want to deal with the hustle and they'll stick with the corporate [...] .

Sciple: Something to keep our eyes on as this new year plays out. Let's move on to the second company on the list. It's Enterprise Products Partners (NYSE:EPD), ticker EPD, in the oil and gas space, so we had a little bit of a tough year in 2020, -9% total return versus 18% for the S&P, so -27 points in 2020. Matt, that begs the question, the stock lost money in 2020. How did that happen? I didn't know they allowed that.

DiLallo: [laughs] Well, there's several reasons. The MLP piece that I mentioned, that's weighing on them because they're an MLP. The oil markets just blow up. That's been an issue. But here's the thing with these infrastructure companies. Basically, what enterprises do is they own infrastructure, they own pipelines, processing plants, storage facilities, all backed by long-term contracts, so their cash flow is pretty good. There were some volumes that for example, if they're gathering pipe in getting oil and gas from an actual well, if that well was turned off, they're not going to get paid unless they have a minimum value of contract. There was a little bit of that that's weighing on them. You also have just this [...] from investors that don't want oil and gas stocks there last year. We'll talk about this in a little bit. Renewables were just the thing. You've got that relative people just bailing on oil and gas, and going to renewables. There's just so many things that were weighing on it last year.

Sciple: But the end of the day, I guess long-term demand for oil and gas, the long-term trajectory, I guess, hasn't been changed significantly when it comes to the pandemic. I guess that the demand for these pipes, do you think that's changed in a meaningful way as a result of what happened in 2020?

DiLallo: I think it's still too early to tell. You have one camp that will say that the pandemic has just ruined oil and gas, we've hit the peak and it's never going to go higher again. Because for example, one of the things that was going to drive a lot of the demand was airlines. We were traveling a lot more for work. Here we are on Zoom right now. If that becomes the standard way that people do business meetings in the future, then you're not going to have the demand for airlines. On the converse side, if people just want to travel more overall, and people want to do these meetings face-to-face, then we'll see a bounce back. I really think it's up in the air and that's why I'm bleary about adding too much of these right now. But if you're just looking for stability, I still think there's a lot of oil and gas that we're going to consume in the years ahead. I think they're going to generate a lot of cash for at least a decade or two more.

Sciple: You look at the dividend yield today, you mentioned earlier you see these high dividend yields. You want to be a little bit skeptical there, they are in the 8% range, how reliable do you see that payout being today? Any concerns there?

DiLallo: I don't have any concerns with them. There's lots of other energy ones that are in that same range or higher than I would have concerns with. But they generate a lot of cash, they have a lot of diversification. I think they cover by 1.6 times their cash flow, that's around a 60%-something payout ratio. That's pretty good. Then that other 40% or so cash, completely funds their expansion projects and they're not expanding as much anymore. That expansion spending's going to come down. That's actually going to allow them to generate excess cash, which they still probably use to buy back some of these cheap units. They have a great balance sheet, investment-grade, so paying off debt isn't an issue. They're just very well-positioned as the energy market bounces back. They can start doing acquisitions to fill in gaps in their system. I really think that they're going to be one of the long-term winners for whatever the energy market has.

Sciple: Absolutely. I think we're still going to be using oil and gas going forward. Obviously, we're going to be driving around, using oil for all the composites and things like that, plastics that use oil. This infrastructure is going to be important. The other thing you mentioned, Matt, about this idea, they're not expanding as much. It's hard to build a new pipeline. One of the first acts of the new administration this week was to sign an order canceling the permit with the Keystone XL Pipeline. This is something that's been back and forth, been a regulatory football going all the way back to 2008. But now it looks like there's finally the nail in the coffin of that pipeline project that was planned to take oil down from Canada down to the Gulf Coast of the U.S. for refining and things like that. Enterprise products, obviously, in the oil pipeline space. How does this regulatory action impact these other companies in the sector?

DiLallo: It could have a big impact because there's been issues with pipelines, like that Keystone XL is only one example of the many pipelines that they've had problems getting built over the years, just because there is just this 'not my backyard' sentiment. The environmentalists and others that are conscious of the environment, why build the pipeline when we could spend that putting in a wind farm or something that's actually good for the environment? I think these are going to be much more reluctant to build pipelines in the future. I know William's Company; a big natural gas pipeline company. They came out with their CEO and said, I don't think it makes sense to even pitch new pipeline projects right now. They had a problem getting a natural gas pipeline built and natural gas that we talked about. It's a great bench trial even for those who have trouble getting built. To build new pipelines, I think it's going to be problematic in the future.

Companies are going to have to get really creative. I know TC Energy who wants to build Keystone XL, they've talked about spending an extra $700 million to basically make that more of a greener project through solar power, wind power, and those sorts of things to reduce the carbon footprint. If something like that is found acceptable, then maybe two more pipelines get built. But I think we're in for several years where we're not going to see many pipelines built and that could cause problems down the road, because if we do end up needing more oil and gas because of demand increases, then we're just not going to have the infrastructure to move that around.

Sciple: You hear Warren Buffett and Charlie Munger talk about they're not going to put it in new railroads and maybe to a certain extent we're seeing things play out. So, maybe we're not going to put in new pipelines, so there's puts and takes here. But for Enterprise Products, they should be in a position to continue producing cash flow on a reliable basis going forward. Any final thoughts on that company as a future investment?

DiLallo: Yeah, I think there's two types of messages that you want to consider as value investors, because of the stock following last year and it's been down for a couple of years. It's just trending really cheap relative to its cash-flow. If you have that kind of value bend, especially in the overheated market, where everything seems to be trading at such a premium, pipeline stocks in general are an interesting place to look for value. Then, if you're looking for yield, I really have a lot of confidence in this enterprise's yield. I think that one is one of the safer ones in that sector. But on the converse side, you have to put up with those K-1s and that's something to keep in mind too.

Sciple: Right, if they were able to maintain the dividend through what we just saw in 2020, you've been stress-tested for what could happen in a terrible scenario. We'll see what happens going forward. But I think for a dividend investor, Enterprise is still an attractive company to invest in. If you're looking for growth, some of these challenges around building new pipelines might limit just how big this oil industry can get, but we shall see. That last pick, Matt, NextEra Energy. This is the one that's really performed quite well. 32% total return, the No. 2 overall performer in the utilities sector, outperforming the S&P by 14%. What can you tell us about NextEra?

DiLallo: It's really so surprising sometimes, when you see what stocks do so well. NextEra is a utility. You think of utility as the slow-growth, sluggish, they pay a dividend, but NextEra, in addition to the utility, they own this massive utility in Florida, but they have one of the biggest renewable energy businesses in the world. That's really what's been driving them. They've been a great total return play for the past decade and a half, because of this renewable energy. They've been really early in renewable energy, they're really good at building these projects and that enables them to keep growing. Last year, it helped to offset some demand issues with electricity and it's the story with NextEra right now.

Sciple: Right. They have made the blueprint for some of these utilities. They leaned into renewables, the earliest they have. The market has rewarded them with, I think they are the highest valued utility on the market, Matt, I mean, do you know that off-hand?

DiLallo: At one point they were the top energy stock in the country, like, more than Exxon and more than Chevron. Yeah, they've just really been highly rewarded for this.

Sciple: Absolutely. So obviously, incredible performance looking backwards, they are in this Florida market, which obviously is going to continue to grow. We hear about everybody moving to Miami. Right now, there are setups for renewables from a wind and solar point-of-view. I guess when you look out going forward, there's been such great returns for the stock in the rearview mirror. What are the prospects for continued promising returns from here?

DiLallo: Yeah, they've got a huge pipeline of projects. Oftentimes I heard they have 15 gigawatts of renewable energy products, the biggest in the world. Their pipeline of new projects is bigger than that. They're basically going to double their size over the next couple of years. Now, they'll sell some of these and it will help finance it, but they just have this huge backlog of projects. It's only going to get better, because the cost of solar panels, specifically in battery storage, is coming down to where NextEra thinks by 2023, 2024, it will be cheaper to build solar projects with battery storage. That makes it basically steadier power than a new natural gas power plant. That's just game-changing as far as the energy industry goes. They're just a leader in battery storage, they're a leader in solar, so lots of growth coming out from them and that's reflected in what they see ahead, they see 10% earnings growth this year. Remember, utility, 10% earnings growth is pretty fantastic. Then +68% for 2022, '23 on top of that, that's really good growth for what's one of the lowest risk companies out there, top-notch balance sheet, one of the most conservative payout ratios for the dividend in the utility sector. It's a great way to play this growth.

Sciple: Yes, there is opportunity. I think you look at NextEra, it's hard to find, you look at the past performance, you look at the opportunity going forward, you look at the enthusiasm around renewable energy. It's really hard to tell yourself a story about why things go wrong. But I'm going to ask you to do that, Matt, just because we said so many nice things about it. Tell a story about how NextEra Energy, as an investment, might go wrong.

DiLallo: We kind of mentioned valuation is becoming an issue in the stock market itself. I think that's one thing that could become an issue. If you had a stock market crash just based on valuation. That could impact NextEra because they need to sell stock to help finance the growth. We mentioned that Enterprise, they are self-funding all their growth. NextEra is really reliant more on the market to help fund their growth. They have their own partnership called NextEra Energy Partners, and they use that to help fund the equity portion of their growth. If they can't sell stock either through that partnership or through themselves, that could impact their ability. They might have to take on too much debt. So, that's just one example of how what looks like a no-brainer could blow up.

Sciple: We shall see. Hopefully, that doesn't happen, but if it does, we'll be here to talk about it Matt. On this overall portfolio from 2020, down about 17 points behind the S&P when you lump everything together, obviously, got whacked a little bit with Enterprise Products. Even if it's thoughts on that overall and just from a dividend and kind of income point of view, how do you think this portfolio held up?

DiLallo: With income, dividends type socks, it's tough to measure them against S&P 500. That's not your goal. For a lot of dividend-type of investments, now, I would love to outperform the S&P 500. That is my personal goal, but I'm OK with getting some underperformance for one-year as long as I'm getting that income. As for me personally, I use that to buy higher-growth stocks. A lot of people reinvested right in that company, or they'll spend that money. But for 11% return from low-risk dividend stocks, I mean, I will take that year-in, year-out, no problem.

Sciple: Yeah, and again, I think if you told me that we would hold up as well as we did, especially on the oil side of the business, the pipeline business with all that kind of volatility throughout the year, I think they think things performed pretty well, all things considered. But we will track back next year to see how that portfolio is continuing to do. We've got a couple of more stocks to add to the list that we can check back on, Matt. First one on the list for 2021; Brookfield Renewable. We've talked about this one a ton, but for folks who haven't heard us talk about it before, what can you tell us about Brookfield Renewable?

DiLallo: Well, if you remember at the beginning of the segment, we talked about Brookfield Infrastructure. This is the sibling company that they focus on. The name suggests renewable energy. They're mostly hydropower, that's where they got their start. But they also own wind farms and they've gotten into solar in the past couple of years and they sell that under long-term fixed-rate contracts they call PPA, power purchase agreements, basically utilities and other big end-users and generate very steady cash flow. They use that cash to pay the dividend and then they'll reinvest some of it to build new projects and to make acquisitions.

Sciple: Right. I mean, this is a company that ever since I've come on this podcast, I've been hosting the podcast for 3.5 years. We've been talking about Brookfield Renewable as a great way to invest in renewable energy the whole time and it's been a great performer. Can you talk about kind of a track record of performance and I guess what opportunities you see for continued growth from here?

DiLallo: In terms of the stock, Brookfield Asset Management is the company behind these two entities and they're just so good. They are, in my opinion, up there with the Warren Buffetts of the world. Obviously not as good as him, but they just have a great takeaway kind of allocating capital. They know how to make value investments and so they look at it more from that value side of things. They'll look for opportunities to buy renewable portfolios cheaper. For example, a company might be struggling financially, until they'll grab their renewable business. They've used that to build these pipelines of projects and that's really helped them outperform. They always maintain a top-notch balance sheet, it lets them access capital cheaper and they're always looking for returns. For a long time, renewables was all about the government incentives. But as costs have come down, you've had these return focused companies like Brookfield getting in there. Brookfield, they know how to make money. That's a big thing, they know how to make money from solar now. They've figured out the best ways for solar. They see so much growth in solar alone, because of how good the return is going to be with the cost coming down. That's just for me, it's really exciting to see.

Sciple: Yeah. You look at this with Brookfield Renewable, it's the same type of factors we saw earlier of the Brookfield Infrastructure Partners and Brookfield Infrastructure Corporation, there's also a Brookfield Renewable Corporation; BEPC. Is it the same puts and takes your anything special to talk about relative to what we talked about earlier?

DiLallo: Yeah, it's the same as everything. In this case, they use that to acquire the rest of TerraForm Power, which is another renewable company that they own a stake in. In this case, they use that like an acquisition currency and that's something that I keep an eye on, whether they used to make other acquisitions in the space in the future.

Sciple: Then last thing, Matt, as we look at opportunities in the future, you mentioned there's push into solar with TerraForm Power. Historically they had been a predominantly hydro-power business. They still, I think, hydro-power as the majority of what's bringing in revenues for the company. But as far as future opportunities where they see room for growth, what are we seeing from this business?

DiLallo: They're going to become a solar dominated company in the next few years. They bought several pipelines of development projects, the company in, I think it was Spain, called x-Elio, a huge, massive pipeline of projects. They just bought Exelon, which is a utility in the United States. They bought their solar business, which came with a pipeline. They bought a huge project in Brazil, one of the largest solar projects in the country, and they believe they can get a 20% return on investment from that project. So, lots of solar growth is coming down for them. They think within 10 years, solar could be the dominant business for them and that's not because they don't like wind or hydro. It's just the returns that they can get because of how low-cost solar has become. It's just too good to pass up.

Sciple: Right. These guys go where the money is, where they can make the money and they have these cash flows coming in from those other assets that they can redeploy. So really, lots of runway for them. They performed well in the past and hopefully, they continue to do so in the future and we'll keep talking about them on the podcast. So Matt, your other stock you have for us is Clearway Energy (NYSE:CWEN), C-W-E-N is the ticker and this is another one that if you look at past performance, has performed quite well. So, it was the top performer in the utility sector in the year 2020.

DiLallo: Yeah, they really did a great job last year. Part of that is one of their top customers is California utility, PGE. They had gone bankrupt and that kind of weighed on them and that bankruptcy you got settled, and so that's freeing up the cash flow that was kind of tied to that company, because their lenders restricted any cash that came from that, because they wanted to make sure that they got paid, and that freed up that cash flow and they were able to reduce the dividend. 59% last year was the dividend increase, and then they will use whatever cash they had kind of built up over the past year to make acquisitions and they just made several investments. And it's a similar concept to the Brookfield Asset Management, Brookfield Renewable partnership, where they have actually two parents in their level. There's a private equity fund called Global Infrastructure Partners and they own their other parent, which is Clearway Energy Group and Clearway Energy Group develops renewable energy projects. So you have these two parents that supply them with deals. So, Global Infrastructure, for example, in the past have bought natural gas generating plants. So, natural gas power plants, and then they'll sell it down and then Clearway Energy Group, they'll develop a wind farm and then sell it down. So you have these two growth drivers that just give them all these opportunities to make acquisitions and investments which, given the dividend, the power needs to grow.

Sciple: Right. So obviously, we're not going to see a 59% increase in the dividend here in 2021 or maybe pass that catalyst. But when you look out to this next year, still lots of opportunities for continued reinvestment with these partners?

DiLallo: Yeah, they're looking at 5% to 8% dividend growth for several years, probably 8% this year because of all the acquisitions last year, and a lot of the acquisitions they've made also have like a longer-term catalyst, like, for example, they are invested in portfolio projects that clearly Energy Group is developing, and as each project comes online, that's when they will close the acquisition, they will get that cash flow, and that gives them pretty good solid visibility into hopefully out to 2023. So you've got selling growth coming, so that gives them a steady growing dividend. As long as investors don't sour on renewable energy, the total returns can still be decent from here.

Sciple: Right, and it's hard to envision a future where we're going to turnaround on renewable energy, just given how much forest is behind it from a public will point of view, political point of view, all those sorts of things. Maybe last question for you Matt, we're talking about Clearway Energy, talking about Brookfield Renewable, both of these are part of the yield-co-type investments on renewable energy and we talked about these a lot as an area that you want to look at as compared to solar panels, or some of these other sub-sectors, or at least we're looking for reliability and then something that's not going to be as volatile. Can you explain why that area is something that you look at specifically for investments?

DiLallo: It goes to how they're structured in their companies. You can kind of almost compare these utilities, these yield-cos, to the pipeline companies in the oil and gas industry and then, for example, your solar panel manufacturers have a lot of comparability to an oil and gas producer, their sales go up and down with demand, and right now demand for solar panels is going to be through the roofs. That's not so much an issue. But you're looking at that infrastructure, that steady cash flow and so for dividend, that's what you wanted, that steady cash flow as opposed to the volatility that you will get -- like solar panels this year, there were some declines because of the pandemic, didn't impact returns, but it could in the future, there is a year where they've changed the tax structure or there's just a bad year for solar, that could really hit solar stocks, but it wouldn't so much for the cash flows of one of these yield-cos.

Sciple: Right. So, there's a lot more volatility in demand for putting in place renewable energy installations route versus once you're already producing power, listen, man, if the economy is good or the economy is bad, I need to turn the lights on at night and I need to turn the heat on and all those sorts of things are a lot less volatility in the demand for that product that they're serving if you want to talk about it that way.

DiLallo: Yes, that's definitely how I would put it, and that stability is so key for dividends. Because when you have that stable cash flow, and a lot of these contracts will be 10 to 15 years. So, you're just sitting back and collecting that income for a while.

Sciple: Automatically, that's Brookfield Renewable Energy and that's Clearway Energy. You had one last watchlist stock for us. We always love stock picks, so I figured maybe we'll run a little bit long. We will give an extra stock pick there. Can you tell us about that one for us?

DiLallo: So this is kind of going off the energy beaten path, but [...] a couple of REITs for the Motley Fool and this is a real estate investment trust and so these type of --

Sciple: Gladstone Land is the name of it. Sorry. Sorry, Matt. I hadn't introduced it to all for you. Gladstone Land is the name of the company.

DiLallo: Yeah, sorry, Gladstone Land, it's a real estate investment trust and it owns farmland, which I think that's kind of unique. There are actually two out there that own farmland. You're not talking about your crops, you grow cornfields; they'll own like a pistachio orchard and strawberry farm and they lease that back to a farmer, actually farms, and they get paid rent on that and they pay +3% dividend monthly, and so who doesn't want to get paid monthly as opposed to quarterly? They had a good track record of growing at, I think it's 21% or 24% for the last 24 quarters, they've increased that dividend, and it's just a neat way to kind of play the food's growth that we have in the country and the world, it's safer, as in a more stable cash flow way. Their balance sheet is kind of a concern of mine. They're not like an investment-grade rated company by any means. So, that's kind of a concern, but it's just something that's on my watchlist and so I thought I'd throw it out there.

Sciple: Awesome, I have never heard of this company. This is my first time hearing about this company, but the one fact that you have about farmland, as I saw a headline the other day, that apparently Bill Gates is now the biggest owner of farmland in the U.S. Bill Gates, smart guy, if he thinks it's a good investment, maybe I should pay a little bit of attention, will see.

DiLallo: Yeah and even Warren Buffett, there's a story about Heyman farmland that he bought a farm a long, long time ago and just the appreciation of the land value really did well for him. So, Farmland is an interesting investment. There aren't too many ways to invest in it, and that's why it's kind of an interesting stock.

Sciple: We might need to do a whole episode on farming stocks if folks are interested, and if you are, let me know. E-mail us at industry@fool.com. Matt, thanks so much for coming on the show to share your thoughts and your stock ideas. Before we go away, I wanted to ask you one last question. We've talked about dividend stocks, reviewed some dividend stocks, looked at some picks going into the future; for folks who are listening, that are income investors, folks who are looking to invest in dividend stocks, what's your best piece of advice for those folks?

DiLallo: Do not look at the yield first. That has just been a bad practice for me in the past. Look at sustainability, look at the balance sheet. Look at if it's in a growth industry, but do not focus on that yield because that will burn you.

Sciple: Yeah. We said it twice because it's important, folks. So, remember it. As always, people on the program may own companies discussed on the show and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for mixing the show, for Matt DiLallo, I'm Nick Sciple. Thanks for listening and Fool on!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.