If ongoing volatility and shaky market dynamics have you confused, you've come to the right place. Some of the highest-quality businesses pay dividends, which can take the pressure off in uncertain times by giving you a passive income stream without the need to sell stocks.
But to get a higher yield, investors typically have to take on a bit more risk. Dominion Energy (D 1.10%), Enbridge (ENB 0.68%), and Chevron (CVX 0.44%) each face challenges. But all three dividend stocks are a great value and have yields above the S&P 500 yield of 1.6%. Here's why these Motley Fool contributors think these companies are worth considering now.
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This utility is out of favor but worth a look
Daniel Foelber (Dominion Energy): Dominion Energy is one of just two major regulated electric utilities that now have a dividend yield over 4% (the other being Southern Company). It exceeds the 3.7% for a 10-year Treasury note.
But Dominion Energy has also been underperforming. Over the past three years, it has lost nearly a quarter of its value -- the worst among major regulated electric utilities.
D total return level data by YCharts.
As bad as the performance has been, Dominion Energy looks like it could be a worthy turnaround play.
The company has been in the doldrums after cutting its dividend in 2020 and selling its natural gas transmission and storage assets to Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%) in what was -- in hindsight -- a case of bad timing. Since then, the company has been trying to regain its footing with cost-cutting to create a more manageable base to build upon.
The company reported its 2022 earnings last week, with $1.09 in earnings per share (EPS) and $4.11 in operating EPS -- the latter in line with its guidance of $4.03 to $4.18.
Based on net income, the stock has a sky-high price-to-earnings (P/E) ratio of 54.6. But based on operating earnings -- a better indication of recurring revenue and the performance of the core business -- Dominion would have a P/E ratio of 14.5. The attractive valuation is a good sign that the utility is improving its business and achieving decent profitability, even though there's still plenty more work to be done.
There are far safer dividend stocks than Dominion. But the company stands out as the best turnaround play in the sector. The valuation could start to look dirt cheap if Dominion continues to become more efficient.
The company also has a lot of potential in decarbonization efforts, particularly offshore wind, with plenty of lease opportunities off the coast of Dominion's largest customer base in Virginia.
The company might have sold some of its natural gas assets to Berkshire at a bad time, but it did so because it believes in transitioning its portfolio to a much more significant percentage of renewable energy.
For investors who believe in Dominion's turnaround and its multidecade strategic shift toward renewables, the stock is worth considering now.
Put some pep in your passive income step with Enbridge
Scott Levine (Enbridge): With Enbridge's 6.7% forward dividend yield, it's clear why income investors would find the midstream company alluring. Skeptics know that high dividend yields can be fraught with risk as some companies will jeopardize their financial well-being to reward investors with hefty payouts. But Enbridge seems financially healthy even wth the high distribution. It has an investment-grade balance sheet rated Baa1 and BBB+ by Moody's and S&P Global Ratings, respectively.
Besides the confidence that comes from seeing a strong balance sheet, the company's investment-grade credit rating ensures that it will receive competitive rates when accessing debt. In 2023, for example, Enbridge projects it will rely on debt funding of $6 billion.
Its vast network of pipelines for natural gas and oil distribution gives Enbridge steady cash flows from reliable customers. According to a recent investor presentation, 95% of its customers are investment grade.
This foresight into future cash flows enables management to plan accordingly for growth projects as well as the return of capital to shareholders -- something that the company has consistently done. Should Enbridge pay its projected dividend of $3.55 in 2023, it will mean the company has increased its payout at a compound annual rate of 12% since 2008.
Besides investors looking to energize their passive income stream with a high-yield dividend stock, value investors will also find Enbridge alluring. Shares now trade at 7.7 times operating cash flow -- a bargain considering their five-year average cash flow multiple is 10.3.
This oil major is a useful addition to a diversified portfolio
Lee Samaha (Chevron): There's no avoiding it: If you aren't optimistic about the price of oil for 2023, then there's no point in reading any further.
But if you are confident about the price of oil, agnostic, or just want to diversify your portfolio by holding some energy-related stocks, then Chevron (a Warren Buffet holding) is an excellent option.
The main reason comes down to its conservative balance sheet, which gives it greater flexibility to invest for growth. That's a concern, and a must, among oil and gas exploration companies because they face a long-term threat from the growth of renewables and negative sentiment toward fossil fuels. That's why Chevron plans to invest $10 billion up to 2028 in lower-carbon business, including carbon capture.
As you can see below, Chevron's debt-to-equity ratio indicates the company hasn't been raising debt to build up assets.
Data by YCharts.
This kind of conservatism and financial flexibility is important because it creates opportunities to use the substantive cash flows from Chevron's existing oil assets to potentially diversify its future revenue streams. Meanwhile, investors will earn a 3.5% dividend yield (with the potential for dividend growth) if they buy the stock now.
