Higher interest rates have crushed higher-yielding dividend stocks. Many of these companies need to borrow money to fund new investments, which is getting more expensive. Meanwhile, lower-risk income investments like bonds and bank CDs now offer higher yields. These factors have weighed on the valuations of many higher-yielding dividend stocks, pushing their yields even higher.
Brookfield Infrastructure (BIP -0.80%) (BIPC -1.04%), Enbridge (ENB -1.21%), and NextEra Energy Partners (NEP -0.89%) have gotten walloped, falling 22% to 73% from their 52-week highs. Here's why income-focused investors should consider buying these dividend stocks on their dips.
1. Slumping despite an exceptional year
Brookfield Infrastructure has plunged more than 30% from its 52-week high. That sell-off has pushed its dividend yield up to 6%. That's several times above the S&P 500's 1.6% dividend yield.
There's no rhyme or reason for Brookfield Infrastructure's decline. The global infrastructure giant is having an exceptional year. The company is on track to grow the annualized year-end run-rate of its funds from operations (FFO) by 13% per unit. The company is benefiting from recent acquisitions and elevated organic growth drivers, including high inflation-driven rate increases and the completion of its Heartland Petrochemical Complex.
Meanwhile, it has lots of growth momentum heading into 2024. It recently closed its acquisition of container leasing company Triton International and has secured investments in two more data center platforms. Brookfield also has strong organic growth drivers, including the continued impact of elevated inflation on rates and the expected completion of two semiconductor fabrication plants it's funding with Intel. These catalysts should drive double-digit FFO growth again next year.
The company's growth driver should give it the fuel to continue increasing its dividend. Brookfield aims to grow its high-yielding payout by 5% to 9% per year.
2. Weighed down by an accretive deal
Shares of Enbridge have tumbled nearly 22% from its 52-week high. That slump comes even though the company remains right on track with its full-year outlook.
One factor that seems to be weighing on Enbridge is its decision to buy three U.S. natural gas utilities from Dominion Energy in a $14 billion deal. The company sees them as a once-in-a-generation opportunity to add high-quality, large-scale gas utilities at a historically attractive valuation. However, given higher interest rates and its sagging stock price, investors worry about how it would fund the deals. The company believes the transactions will be highly accretive, even after recently issuing stock to pre-finance the transaction.
Overall, the acquisitions will enhance Enbridge's ability to deliver 5% annual earnings growth over the medium term. The deals will be accretive to its earnings in the first year while improving its growth prospects by adding a multibillion-dollar backlog of low-risk, high-return capital projects.
They should give Enbridge more fuel to increase its dividend, which yields 8.1% following its sell-off this year. The company has raised its dividend for 28 straight years.
3. Slowing down
NextEra Energy Partners has gotten bludgeoned. The renewable energy producer has plummeted nearly 72% from its 52-week high. That has driven its dividend yield up to 15.6%.
Weighing on the stock was its decision to stomp on the brakes and slow its dividend growth. NextEra Energy Partners cut its outlook from an ambitious plan to expand its payout by 12% to 15% per year through 2026 to a more moderate expectation of delivering 5% to 8% annual dividend increases with a target of 6%.
Higher interest rates are the main driver. The company can no longer borrow money at an attractive enough rate to make accretive acquisitions from its parent, NextEra Energy. As a result, it expects to shift gears and focus on investing in organic growth projects, like repowering existing wind farms and adding battery storage capacity to its wind and solar energy facilities. The company believes these higher-returning investments, which it will fund primarily with retained cash flow after paying dividends, will grow its earnings to support its reset dividend growth plan. That strategy aligns more with its peers, which focus on internally financing growth to deliver dividend increases around NextEra Energy Partners' reset range.
Much lower share prices mean significantly higher yields
The sell-offs of Brookfield Infrastructure, Enbridge, and NextEra Energy Partners have driven up their dividend yields. Because of that, investors can generate more income by investing in those companies. Meanwhile, all three expect to continue increasing their already high-yielding payouts. The potential of earning high-yielding and steadily rising dividends makes them enticing stocks to buy for income right now.
