Quality dividend stocks may be overlooked in today's high-flying market. But when the market eventually sells off, collecting a steady stream of passive income without the need to sell shares of stock at a lower price will feel great.
Three Motley Fool contributors were thinking of passive income from stocks when they chose Nike (NKE 0.19%), Whirpool (WHR -0.39%), and Brookfield Renewable (BEPC 0.09%) (BEP 0.19%) as dividend stocks that are down over the last year despite the broader S&P 500 rally.
By Investing $5,500 equally across these three stocks, you can expect to earn over $1,000 in dividend income within four years. Here's why each stock could be worth buying now.
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Despite its struggles, Nike has consistently returned capital to shareholders
Daniel Foelber (Nike): Nike is down over 45% from its all-time high and has lost value over the last three years. The stock sold off immediately following its latest earnings report, but there were signs of improvement in the business.
On its second-quarter fiscal 2024 earnings call in December, Nike said it expected negative revenue in Q3 due to difficult comps. It then forecasted low single-digit revenue growth in Q4 -- and ultimately -- just 1% higher revenue in fiscal 2024 compared to fiscal 2023.
Nike reported Q3 earnings on March 21, and they came in higher than expected as revenue was up slightly compared to the same quarter last year. It wasn't a lot to cheer about, but it was a much-needed step in the right direction for patient Nike investors.
The company's performance in China remains strained, and competition is fierce from the usual suspects plus newer rival brands like Lululemon, On Holding, and Deckers Outdoor-owned Hoka.
Nike's business can fluctuate based on consumer spending. However, the company consistently returns capital to shareholders through dividend raises and buybacks.
In the recent quarter, Nike returned $562 million to shareholders through dividends -- 6% more than the same period last year. It also bought back $866 million in stock. In total, it has repurchased around $8 billion of its four-year, $18 billion program, which was approved by Nike's board in June 2022.
With a 1.4% dividend yield, Nike may not stand out as the most attractive dividend stock. But its dividend has more than tripled over the last decade, and the outstanding share count is down over 13%. Based on Nike's repurchasing program, we can expect the pace of buybacks to accelerate.
At a price-to-earnings (P/E) ratio under 30, Nike isn't a bad value for such a powerful brand. But some folks may want to add it to a watchlist instead of buying as to give the turnaround more time to play out.
Whirlpool is an excellent stock for housing market bulls
Lee Samaha (Whirlpool): There's no way to sugarcoat this. Relatively high interest rates negatively impact the housing market, which means weak demand for household appliances from the discretionary and new-housing markets. That's not good news for Whirlpool. Indeed, management expects this year's like-for-like sales growth to be flat on 2023, with its life-for-like adjusted earnings before interest and taxation (EBIT) margin to also be flat on 2023.
It's not going to be an easy year for the company. Then again, this will likely prove a trough year for the company. Meanwhile, management is restructuring the business for growth.
The upcoming divestment of its low-margin European business to a Turkish company will focus Whirlpool on its key, and most profitable, markets like North America, Latin America, and India. In addition, after stripping out $800 million in costs in 2023, management plans to strip a further $300 million to $400 million in 2024.
Wall Street expects Whirlpool to deliver $13.51 in earnings per share in 2024, which is more than enough to fund a dividend of $7 per share while investors wait for a lower interest rate environment to boost Whirlpool's top-line prospects. As such, if you are bullish on the long-term prospects of the U.S. housing market, then Whirlpool is an excellent place to invest in the theme.
Brookfield Renewable offers income investors a place in the sun
Scott Levine (Brookfield Renewable): Whether you're years away from retirement or your days of punching the time clock are behind you, generating passive income is always a smart investment strategy, regardless of your age. Buying shares of leading dividend stocks like Brookfield Renewable, which currently offers a forward yield of 5.9%, can help young investors build ample nest eggs and older investors manage their current nest eggs.
Operating one of the world's largest clean energy portfolios, Brookfield Renewable inks long-term agreements with customers who purchase power from the company's solar, wind, and hydropower assets. Because these power-purchase agreements have terms that last for many years -- about 90% of its contracts average 13 years -- Brookfield Renewable has clear insight into future cash flows. Management, consequently, is able to strategically allocate capital, advancing projects in its pipeline to ensure growth and distributing cash to shareholders in a financially prudent manner. While the company is targeting annual-dividend increases of 5% to 9%, it simultaneously expects 10% annual growth in its funds from operation (FFO) from 2023 through 2028.
Experienced investors know that sometimes companies will be quick to offer unrealistic outlooks to suit potential investors or reassure current shareholders, so they may be skeptical of Brookfield Renewable's targets. A quick look at the company's history provides some reassurance though. From 2012 though 2023, the company has increased its FFO and distributions at compound annual growth rates of 10% and 6%, respectively.
