Market volatility is rising as the Nasdaq Composite is close to reentering a bear market while the S&P 500 finds itself back in correction territory. Investors looking at bruised and battered portfolios may find solace in passive income streams from quality companies.
Investing in equal parts of Brookfield infrastructure Partners (BIP -2.35%), Deere & Company (DE -0.28%), and ABB (ABBN.Y -0.91%) gives an investor an average dividend yield of 2.5% and exposure to infrastructure, agriculture, automation, and robotics. After a period of four years, an investor could expect a $10,000 investment to earn at least $1,000 in passive dividend income. Here's what makes each dividend stock a great buy now.
Build a better passive income stream
Scott Levine (Brookfield Infrastructure): I don't think investing is what Tom Petty had in mind when he penned the lyric, "the waiting is the hardest part," but it applies to dividend investing nonetheless. Identifying rock-solid dividend stocks is challenging; however, once accomplished, it takes discipline and patience to let that passive income stream grow from a trickle to a babbling brook. In other words, recognizing Brookfield Infrastructure Partners -- and its 3.4% forward yield stock -- is the easier part. Picking up shares and letting that passive income stream burgeon into a babbling brook of dividends requires patience -- but sitting back and getting paid to do nothing is easy to get used to.
With a portfolio of assets valued at about $74 billion and located on four continents, Brookfield Infrastructure is a global leader in developing and operating a variety of infrastructure assets including data, utilities, midstream, and transport. And it's not slowing down despite its formidable position. Management has identified $900 million in investment opportunities for the company's utilities business. This is expected to result in the regulated transmission utilities growing earnings before interest, taxes, depreciation, and amortization (EBITDA) at a 9% compound annual growth rate from 2021 to 2026. Similarly, the company has $950 million in planned investments for the transport segment, which should help the company grow EBITDA 12% to 15% over the next five years.
Investors willing to sit back and let their passive income stream grow want to know that their stock choices are robust enough to generate consistent returns. While there's no guarantee that Brookfield Infrastructure will be a winner, the company's track record should help to mitigate the concerns of skeptics. From 2009 to 2021, Brookfield Infrastructure has grown funds from operations and raised its per unit distribution at compound annual growth rates of 15% and 10%, respectively. Deft management of capital and a steadfast interest in returning capital to unitholders is something that could make the waiting less of a strain.
Look toward greener pastures with Deere stock
Daniel Foelber (Deere): Even after falling 5% on Friday, share prices of Deere are up 17.7% year to date. The majority of readers are probably familiar with John Deere brand industrial machinery and farming equipment. But Deere also makes engines and drivetrains. Like many equipment manufacturers, Deere has been working on reducing emissions by implementing electric transmissions and electric power generation as options for farmers. Deere claims that it offers the agriculture industry's only transmission that enables electric power generation up to 100 kilowatts. It is also coming out with an autonomous tractor that uses an Nvidia graphics card.
Deere's new product offerings matter in an environmentally conscious low-carbon future. But its ability to retain a leading position in equipment for agriculture and construction (along with Caterpillar) is critical when commodity prices are surging.
The investment thesis for Deere is very simple. As farmers make more money from demand outpacing supply and rising food prices, they may choose to reinvest some of their extra profits into new equipment, which benefits Deere. Or they may branch out into artificial intelligence, which Deere is a leader in when it comes to the agriculture industry.
It's worth remembering that Deere is a cyclical stock, so its results tend to ebb and flow with broader industry trends. Despite its stock price being up 139% in just three years, Deere stock still looks cheap with a price-to-earnings ratio of just 22.3.
Deere may not be a Dividend Aristocrat. But its dividend has nearly doubled in the last five years -- not to mention it has never cut its dividend in 40 years. Add it all up, and Deere stock looks like a great source of passive income, as well as an inflation-resistant company with a lot of upside.
The turnaround at ABB gathers apace
Lee Samaha (ABB): The European industrial giant has long held some exciting businesses in its portfolio. However, the suspicion is that management wasn't extracting full value from them, and ABB owned too many non-core businesses in its portfolio.
That was then, but this is now. Since current CEO Bjorn Rosengren took over in 2020, the company has been restructured internally, with management ditching its matrix operational structure in favor of a more conventional pyramid. Moreover, ABB has sold and has plans to divest non-core businesses. ABB sold 80.1% of its power grids to Hitachi in 2020, its mechanical power transmission business in 2021, the turbocharging business is up for sale, and management still plans to spin off the e-mobility (charging) business in the second quarter.
The restructuring plans are in place and management continues to pivot toward a focus on its core businesses in automation, robotics and discrete automation, motion control, and electrification products. As such, ABB has a pivotal role to play in some exciting growth trends. From electrification in the economy to the increasing use of automation in production, through to robotics, ABB is there.
Moreover, its latest earnings report shows the company making excellent progress -- comparable orders are up 28% and comparable revenue is up 7% year over year. It's an excellent result under the circumstances, and management confirmed its expectation to hit an EBITDA margin of at least 15% in 2023 from 14.2% in 2021.
All told, ABB has revenue growth and margin growth prospects. Throw in a 2.8% dividend yield, and the stock is attractive for income-seeking and growth investors alike.