Broader market volatility has rippled through to quality businesses and sent many top stocks down big from their highs.
Brookfield Renewable Partners (BEP -1.66%), Air Products and Chemicals (APD 0.17%), and Watsco (WSO 0.77%) are three dividend stocks that are on sale now. Investing in equal parts of each stock produces a dividend yield of 3.1% while exposing your portfolio to the renewable energy industry, specialized cooling and heating equipment, and specialty chemicals.
These three businesses may not have the flair of a hot growth company. But they more than make up for it with the reliability needed to pay and raise their dividends. Here's what makes each business a great buy now.
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A one-two punch of short-term income and long-term growth
Daniel Foelber (Brookfield Renewable Partners): Steep stock sell-offs across the renewable energy industry are arguably warranted given that costs are rising, and capital is becoming more expensive to borrow. But like all industry declines, there are certain companies that have gotten undeservingly punished. And that presents a buying opportunity.
Brookfield Renewable Partners stock is down over 30% from its all-time high as investors show little patience for long-term investment projects. Pair the lower price with Brookfield's recent 5% distribution increase to an annualized $1.28 per unit, and you have an attractive 3.6% dividend yield. The dividend raise marks the 11th consecutive annual dividend increase.
BEP Percent Off All-Time High data by YCharts.
Brookfield invests in a variety of renewable energy projects and other decarbonization investment opportunities. Its goal is to put capital to work in multidecade-long initiatives that generate steady cash flows that it can use to grow the business and distribute to investors. Brookfield's earnings tend to fluctuate over the short term because net income factors in expenses that aren't necessarily indicative of how Brookfield's business is performing. Looking at its funds from operations (FFO), which takes out depreciation and other expenses, can be a better yardstick for tracking Brookfield Renewable's ability to support its dividend. Brookfield earned $934 million or $1.45 per unit in 2021 FFO, which is enough to fund its dividend.
Brookfield Renewable is one of the best ways to combat the cyclical nature of the renewable energy industry because it provides a quarterly passive income stream via its dividend with a ton of long-term potential as renewable energy continues to make up a larger percentage of the global energy mix.
Walk on air with this Dividend Aristocrat
Scott Levine (Air Products & Chemicals): When searching for tickers that I'd be happy to park in my portfolio for the next few decades, one of the first things that I consider is the company's history. If a company has a checkered past, it can be a warning flag that this may not be a stock that I'd like to begin a long-term relationship with. Conversely, there are businesses such as Air Products & Chemicals that have a track record of stellar performance -- businesses that I'd be happy to count among my holdings for many years to come.
Tracing its history back to 1940, Air Products has grown considerably from its humble beginnings when it sold oxygen generators to support the military during World War II. Today, Air Products, a $56.8 billion company, has emerged as the leading industrial gases stock available to investors based on market cap. But it's not only its industry-leader status that I find impressive; it's also the company's commitment to shareholders. Air Products is one of the rare companies that has achieved the title of Dividend Aristocrat.
Currently, investors who pick up shares of Air Products will have the benefit of receiving a dividend with a 2.6% forward yield, and they'll have the confidence that they're collecting a dividend that's unlikely to dwindle anytime soon. Management's circumspect approach to the dividend, for example, can be seen in the fact that Air Products has averaged a payout ratio of less than 58% over the past 10 years. Moreover, the company has excelled at generating strong free cash flow, which provides further evidence of the dividend's security.
APD Dividend data by YCharts.
The competitive advantage of Air Products is significant: Developing a complex industrial gas generation and supply infrastructure is hardly an endeavor in which new businesses can easily compete. For this reason and so many others, it's clear that Air Products is one ticker that I'd love to see in my portfolio for many, many years.
The sell-off in the stock is a buying opportunity
Lee Samaha (Watsco): The heating, ventilation, air conditioning, and refrigeration (HVACR) distributor is one of those companies that keeps quietly building value for investors while paying healthy dividends. Distributing HVACR products may not seem like a sexy growth business, but Watsco is an industry consolidator in a highly fragmented market.
Watsco has traditionally built scale through acquisitions, and that tradition will continue in the future. In addition, Watsco is increasingly investing in technological innovation to be more accessible for HVACR contractors. These innovations include product information databases, mobile apps to assist contractors, and digital sales platforms.
It's all intended to increase the usefulness of Watsco's offerings to contractors in a digital age. As such, the company can continue to grow its market share, which means revenue, earnings, and dividend growth. Indeed, the company has paid dividends to investors for 48 consecutive years and maintains a conservative balance sheet. Given the installed base of HVACR equipment in the U.S. and the fact that the majority of its revenue comes from the replacement market, the company has relatively stable end markets. All told, it's a safe bet that Watsco will carry on generating dividends for investors for many years to come, and its current 3% dividend yield is attractive for income-seeking investors.
