With inflation driving up expenses, many people are searching for ways to boost their income these days. One option is to make investments geared toward generating passive income. That could set you up to make more money next year to help offset some of inflation's sting.
Stanley Black & Decker (SWK 0.99%), Energy Transfer (ET 0.12%), and Brookfield Infrastructure Partners (BIPC -1.04%) (BIP -0.80%) stand out to a few Fool.com contributors as great income options for 2024. Here's why they think investors should buy shares of these dividend stocks to position their portfolio to generate more income next year.
Stanley Black & Decker's turnaround is progressing
Reuben Gregg Brewer (Stanley Black & Decker): There's no point sugarcoating things: Stanley Black & Decker is in a bad place. The industrial stock's financial results have been nothing short of terrible, leading the stock to a decline of more than 50% from its 2021 highs.
This is a turnaround story from head to toe, and only more aggressive investors should be considering it. But there are some notable green shoots starting to show here. For example, operating margin in the company's tools and outdoor division, its most important business, have been heading higher for three consecutive quarters as management's efforts to boost profitability take hold. Some of the key elements of the plan have included reducing the number of similar products being sold, reducing debt, and closing factories. But the real point is that management is living up to its word.
Which brings up an important comment, repeated multiple times, from the company's third-quarter 2023 earnings call: Management believes the company will be able to post adjusted earnings of between $4 and $5 a share in 2024. That will be a dramatic increase from the current expectation of around $1.40 to $1.60 per share in adjusted earnings in 2023. If you can stomach a turnaround stock, it looks like the worst is nearly over for Stanley Black & Decker, with 2024 likely to be one filled with big improvements.
This high-yielding payout is heading even higher next year
Matt DiLallo (Energy Transfer): Energy Transfer already offers an eye-popping payout at 9.2%. The master limited partnership's (MLP) yield is significantly above average (the S&P 500's dividend yield is currently around 1.5%).
That big-time payout will grow even bigger next year. The midstream giant aims to increase its distribution by 3% to 5% annually. It has been slightly raising its payment each quarter.
The MLP has plenty of fuel to grow its payout. Energy Transfer estimates it can produce about $7.5 billion in annual distributable cash flow. Its current distribution costs around $4 billion per year, giving it a roughly 53% payout ratio. That's enabling it to retain substantial cash to fund growth projects (targeting $2 billion to $3 billion per year), with plenty of money left over to strengthen its already solid balance sheet and opportunistically repurchase its common units.
The company's cash flow should continue growing in the future. Energy Transfer recently completed two needle-moving acquisitions. It bought Lotus Midstream for $1.5 billion in May and closed its $7.1 billion acquisition of fellow MLP Crestwood Equity Partners last month. Both deals will boost its free cash flow as it captures cost savings.
Meanwhile, the company has completed several expansion projects over the past year and has more in the pipeline. It's also developing several potential needle-moving projects that could fuel growth in the future. The most notable one is its long-delayed Lake Charles LNG project. Finally securing that project would be a major catalyst for the company in 2024.
Energy Transfer should deliver meaningful earnings growth next year fueled by recent acquisitions and expansion projects. That should enable it to continue increasing its payout. Add some expansion project catalysts, and it's a great dividend stock to buy to position your portfolio for a strong dose of income and upside potential in 2024.
This stock should give you a dividend raise in 2024
Neha Chamaria (Brookfield Infrastructure Partners): Shares of Brookfield Infrastructure -- both the partnership and corporate shares -- have lost more than a quarter of their value in the past six months or so. The company's operational performance, however, is leaving no room for complaints. This divergence in Brookfield's fundamentals and the market's sentiment makes it a top-notch dividend stock you'd want to own going into 2024.
In its third quarter, Brookfield grew its funds from operations (FFO) by 7% year over year, driven by higher tariffs and the commissioning of capital projects worth nearly $1 billion over the past 12 months. Utilities was the strongest segment, with its FFO rising 17% year over year. Brookfield owns and operates diversified infrastructure assets, including utilities, transportation, midstream energy, and data infrastructure. It's worth noting that Brookfield also regularly sells mature assets to reinvest the proceeds opportunistically, and its FFO in Q3 grew despite the sale of assets worth nearly $2 billion.
Brookfield has also invested aggressively in growth this year, including the acquisition of global intermodal shipping company Triton International for $1.2 billion, and several data centers. These investments should start adding value to the company's bottom line and cash flows in 2024 and support its dividend growth goals. Brookfield is targeting more than 10% growth in FFO and 5% to 9% growth in its annual dividend per share in the long term.
So here's what you're getting from Brookfield Infrastructure Partners stock: a dividend yield of 5.5% and a potential dividend raise of at least 5% in 2024. With the stock also losing ground in recent months largely on fears of higher interest rates, you wouldn't want to miss this opportunity.
