Dividend investors looking for opportunities today should start with companies that have strong histories of increasing their dividends. After that, you should look for stocks with historically high yields, which suggests the shares may be trading at attractive prices. Three stocks that pass both of those screens are Hormel Foods (HRL +0.39%), Black Hills Corporation (BKH +1.16%), and Enbridge (ENB +0.93%). Here's a quick look at the businesses of each of these historically cheap dividend stocks.
1. Hormel is not firing on all cylinders
Hormel Foods is probably best known for making Spam, but it owns a large collection of segment-leading brands. The food maker's 3.5% dividend yield is near the highest levels in the company's history, suggesting that the stock is in the bargain bin. This is not a short-term thing; the company has been struggling for a couple of years. But that hasn't stopped this Dividend King from increasing its dividend, with a streak that is now up to 57 years.
NYSE: HRL
Key Data Points
The good news is that none of the problems Hormel faces are likely to be permanent headwinds. For example, it hasn't been as successful as peers in passing on higher costs via price increases. Time should fix that. Its turkey business has been hampered by a difficult avian flu environment, which is also likely to be a temporary problem. China's economic recovery has been slower than expected, another issue that should right itself over time. And the company's Planters brand is dealing with a tough market for nuts, but the business has been outperforming the segment. All told, Hormel is struggling, but it doesn't seem like any of these challenges change the long-term story for this reliable dividend payer.
2. Black Hills slowed down in 2023
Regulated utility Black Hills has increased its dividend for 53 consecutive years, making it a Dividend King. Its 4.6% yield is near its highest levels over the past decade, suggesting that the stock is attractively priced today. That said, with a market cap of just $3.6 billion, it is a relatively small utility, so many investors may not have heard of it. One of the reasons why the yield is so high, meanwhile, is because 2023 was a reset year in some ways, because the company shifted cash from capital investments to debt reduction. Higher interest rates were a big part of that decision, but capital spending is projected to pick back up in 2024 and beyond.
NYSE: BKH
Key Data Points
That said, there are some things to like about this utility. First, while it isn't exciting, it is highly reliable. Its status as a Dividend King is proof of that. But helping out is the fact that Black Hills is a regulated utility, which means it has to get its rates and spending plans approved by the government. Although this limits upside potential, it generally leads to slow and consistent growth over time. Second, the regions in which the company operates have seen customer growth that's nearly three times as fast as U.S. population growth. An expanding customer base hints at a bright future for Black Hills despite the near-term slowdown in capital spending.
3. Enbridge has a diversified energy business
North American midstream giant Enbridge has increased its dividend for "only" 28 years. Compared to Hormel and Black Hills, that's a short streak, but compared to the rest of the stock market it is quite impressive. The company's yield, meanwhile, is a historically high 7.3%.
NYSE: ENB
Key Data Points
Enbridge owns the infrastructure that helps to move oil and natural gas around the world, including pipelines, storage, and transportation assets, among other things. It also owns a natural gas utility and renewable power assets. All of these businesses provide reliable cash flows thanks to fees, regulation, or long-term contracts. Thus even highly volatile energy prices don't have that big an impact on the company because it is demand for Enbridge's assets that is important, not the price of the commodities flowing through them. The one thing that investors need to understand with Enbridge is that the yield is likely to make up the lion's share of your return, because growth opportunities are limited in the midstream space. But if you are looking to maximize the income you generate from your portfolio, that probably won't be a problem.
No rush, but don't dawdle
The issues that have pushed the yields of these three dividend stocks toward historical highs are not going away anytime soon, so you have time to dig in and get to know them before hitting the buy button. But don't put them on the back burner, either; Hormel, Black Hills, and Enbridge are all well-run companies and it is highly likely that they will eventually be appreciated again by Wall Street. And when that happens, the yields will fall, and they won't look nearly as cheap as they do today.
