Many dividend stocks sold off in 2023 as investors looking for cash flow turned to bonds offering attractive yields. That presents investors with an opportunity to buy some of these dividend stocks for bargain prices.
I think three that have been sold off too far are Verizon Communications (VZ 1.17%), NextEra Energy Partners (NEP -0.89%), and Vici Properties (VICI -0.28%), which all have attractive yields and great businesses.
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1. Verizon
The market punished Verizon in 2023 and it's now too cheap to pass up. Verizon's shares trade with a price-to-earnings multiple of 6.6, an enterprise value-to-EBITDA ratio of 6.1, and a dividend yield of 8.4%.
What seems to be missing is the fact that Verizon is slowly increasing prices, adding fixed wireless customers, and quickly improving cash flow as investment in the 5G network subsides. The company has even started to bundle its wireless services with streaming content, which could create a powerful offering to attract consumers.
Investors are pricing this company as if its business is deteriorating quickly, but that's not what the numbers indicate. Analysts are expecting both revenue and earnings to be up slightly over the next two years and that's even in a rising interest rate environment. By almost any metric, Verizon stock is cheap and I think that's a big opportunity for investors.
2. NextEra Energy Partners
It was a rough week for NextEra Energy Partners, which cut back expected dividend growth in order to shore up its balance sheet. But this sell-off has made the stock incredibly cheap.
What was stated last week was the intention to reduce dividend growth from a range of 12% to 15% to a lower range of 5% to 8% with a target of 6%. And the annualized payout rate is expected to be $3.52 per share in February 2024, which would be a yield of 15.6%.
That's the kind of yield usually reserved for companies in severe financial duress, which isn't really the case here. NextEra Energy Partners owns renewable energy projects that have long-term contracts with utility companies, giving cash-flow visibility years into the future. There may be ups and downs as project debt is refinanced, but I think the market has sold this stock off too far and the price is too cheap to pass up.
3. Vici Properties
Real estate investment trusts (REITs) struggled as higher interest rates put pressure on the market and tenants of some buildings cancel or modify their leases. One REIT that isn't struggling with tenants is Vici, which has long-term contracts with some of the biggest casino companies in the world.
The company's assets in Las Vegas and U.S. regional markets are backed by booming businesses, so the risk that those companies will break their leases is relatively low. The downside to that is 20- to 30-year leases that are capped normally at 2% to 3% rent growth, so the upside is limited.
If management needs to refinance debt, that could lead to lower payouts long-term for investors. But the impact would be years off. Only $1.05 billion of debt comes due before the end of 2024 with another $2.05 billion due in 2025.
I think by the time Vici needs to refinance debt it will either be able to use cash flow to do that or it can refinance it with higher rents. The dividend may not grow as a result, but with a 5.8% dividend yield, this is a stock that's fine to buy and hold long-term with no expectation of dividend growth.
Great businesses with amazing dividends
In the case of Verizon, NextEra Energy Partners, and Vici Properties, these are solid businesses with increasingly attractive dividend yields that are looking too good to pass up.
