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Investing $50,000 in This Basket of Dividend Stocks Could Give You $1,500 in 2022 Income

By Daniel Foelber – Dec 27, 2021 at 9:03AM

Key Points

  • Lockheed Martin’s business could be challenged over the medium-term.
  • Brookfield Renewable has plenty of growth ahead.
  • Caterpillar is still a buy despite its somewhat dissapointing 2021 performance.

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This mix of industrial and renewable energy companies could be a great way to generate passive income next year.

This has been another wild year, with the S&P 500 currently up over 20% after a 16% gain last year. Looking ahead to 2022, many investors are probably setting financial goals that undoubtedly include not losing money.

One way to protect yourself against volatility is by investing in dividend-paying stocks that generate income no matter what the market is doing. Dividing a $50,000 investment into roughly equal parts among defense contractor Lockheed Martin (LMT 0.11%), renewable energy asset manager Brookfield Renewable (BEPC 1.98%) (BEP 0.70%), and diversified industrial company Caterpillar (CAT 0.64%) is likely to yield $1,500 in low-tax dividend income in 2022. Here's what makes each dividend stock a great buy now.

A welder working on top of a steel girder.

Image source: Getty Images.

1. Lockheed Martin

Lockheed Martin stock is trading right around where it started the year. As one of the largest defense contractors, the company operates under long-term sales cycles based on contracts with the U.S. government and its allies. The bad news is that Lockheed's sales growth has been flatlining for years now. And its recent guidance points to a multiyear period of stagnant or even negative growth. This news set off a move to the exits among many investors who want no part of a low-growth business. Unsurprisingly, Lockheed stock has taken a hit. It is down for the year after being down last year, and is trading within striking distance of its 52-week low. 

LMT Total Return Level Chart

LMT Total Return Level data by YCharts.

It's not a great situation, but it's certainly better for investors that Lockheed has told them a lot of the bad news ahead of time. Its declining stock price and rising dividend payout have the dual effect of increasing its dividend yield, which is now at the high end of its historical range. For investors looking for an industry-leading company with predictable cash flows and a growing dividend, Lockheed Martin could very well be one of the best options.

2. Brookfield Renewable

Share prices of Brookfield Renewable are hovering around a 52-week low as the renewable energy sector cools off from a red-hot 2020. Brookfield has a portfolio of wind, solar, hydroelectric, and energy-storage assets tied to power purchase agreements. These contracts generate stable long-term cash flows, but the company also has a lot of debt and is spending a lot of money to develop its 36-gigawatt pipeline of projects.

Brookfield's infrastructure developments will take time to play out. In the meantime, a lot of its dry powder is being used to support its dividend. It's a short-term problem, and the Brookfield family of companies has a reputation for outlasting short-term issues.

Brookfield plans to steadily increase its earnings and dividend as its projects come onstream. Few companies have the capacity or project pipeline that Brookfield has, not to mention the stock's 3.4% dividend yield. For investors confident in the energy transition from fossil fuels to renewables, Brookfield is an easy choice.

3. Caterpillar

Caterpillar stock is up for the year after outperforming the S&P 500 in 2020. This may come as a surprise to investors who look at Caterpillar's revenue and earnings and see they are both still down quite a bit from their pre-pandemic levels.

Caterpillar's business is recovering, but it hasn't been the coiled spring that the market hoped for. Expectations for a rebound in the global economy fueled by a return to normal -- and federal support like the bipartisan infrastructure bill -- have been somewhat thrown off by a labor shortage, supply chain challenges, and a pandemic that is very much still alive.

But investors who believe in the steady growth of the construction, materials, and energy and transportation industries (particularly across the U.S., South America, and China) could be interested in Caterpillar's long-term potential. It has raised its annual dividend for 27 consecutive years, earning it a coveted spot on the list of Dividend Aristocrats. So while Caterpillar's sales and earnings may ebb and flow with the broader economy, investors can count on it to pay its dividend through thick and thin.

A basket yielding 3% in dividends that's built for the long term

Lockheed Martin, Brookfield Renewable, and Caterpillar are industry-leading businesses that have long-term growth potential. All three companies are facing their share of challenges, which could get worse or better in 2022. The best thing an investor can do is understand the businesses and their challenges to make sure each long-term investment thesis remains intact. The good news is that these three companies are positioned to be around for decades to come, and can support and grow their dividends in 2022.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool owns and recommends Brookfield Renewable Corporation Inc. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

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