The stock market had a strong first half of the year. The S&P 500 rallied 14.5%, while the tech-heavy Nasdaq-100 index surged 17%.
However, while the first half was strong for the broader market, it wasn't quite so good for dividend stocks. The Dow Jones US Dividend 100 Index (which tracks the 100 top dividend stocks) only rose about 2%. Because of that, many high-quality dividend stocks look like relatively attractive investments right now.
Enbridge (ENB +0.19%), Brookfield Infrastructure (BIPC +0.00%)(BIP +0.85%), and Brookfield Renewable (BEPC +0.00%)(BEP 0.26%) stand out to a few Fool.com contributors as great dividend stocks to buy now. Here's why they could deliver strong total returns in the second half of the year and beyond.
A 7.5% yield is hard to complain about
NYSE: ENB
Key Data Points
Reuben Gregg Brewer (Enbridge): The portfolio backing Enbridge's 7.5% dividend yield is changing in 2024. That's because the company is buying three regulated natural gas utilities from Dominion Energy.
These deals are expected to be completed by the end of the year and will increase the Enbridge's exposure to natural gas utilities from 12% of earnings before interest, taxes, depreciation, and amortization (EBITDA) to 22%. That's a big change, helping to reduce the company's reliance on oil pipelines, which will fall from 57% of EBITDA to 50%.
This is a key long-term focus for Enbridge as it looks to shift its business along with the world as demand for cleaner energy sources increases. There are negatives for Enbridge with this deal, which is requiring it to take on some debt. However, Enbridge has reliable cash flows from its fee-based, regulated, and contract-driven income streams and should be able to handle the additional leverage.
The benefit of the acquisitions is that Enbridge will have more regulated utility assets, which have fairly reliable capital investment and return profiles. So, basically, it is baking in more slow and steady growth for the future.
And that brings up the stock's impressive 29 consecutive annual dividend increases. The yield is likely to make up the lion's share of an investor's total return, but slow and steady dividend growth could easily round the total return up to 10%.
Right now could be the time to lock in this high-yield stock since the acquisitions that have Wall Street worried should be in the past by the end of 2024. After that point, Mr. Market may take a more positive view of the future and the stock.
Waiting for the market to wake up
NYSE: BIPC
Key Data Points
Matt DiLallo (Brookfield Infrastructure): Shares of Brookfield Infrastructure meandered along during the first half of 2024. The global infrastructure giant slipped about 4%, vastly trailing the S&P 500's first-half surge. That underperformance makes no sense whatsoever.
For starters, the company is growing briskly. Its funds from operations (FFO) rose 11% in the first quarter, powered by a strong 7% organic growth rate and the impact of over $2 billion of new investments. Those catalysts should continue fueling healthy growth this year. Brookfield expects its FFO per share to rise by more than 10% in 2024.
That would push its FFO up to around $3.25 per share. With its stock price recently around $34, Brookfield Infrastructure trades at about 10.5 times forward earnings. That's about half the forward price-to-earnings (PE) ratio of the S&P 500 at 22.2. This dirt-cheap valuation is a big reason why Brookfield Infrastructure offers such a high dividend yield (nearly 5%).
The stock trades as if Brookfield won't grow very fast in the future. That couldn't be farther from the truth. The company expects to continue delivering double-digit FFO per share growth. Several catalysts power that view.
CEO Sam Pollock noted: "Our sector-leading organic growth is highly correlated to the two most significant trends of this decade, namely, decarbonization and AI/digitalization. The investments we are currently making in our transmission, residential decarbonization, semiconductor and data center businesses will fuel our growth for many years."
The company's growth drivers should give it the fuel to increase its high-yielding dividend by 5% to 9% per year. Add that income stream to its earnings growth and valuation upside potential, and Brookfield could generate robust total returns in the coming years.
High-powered growth ahead
NYSE: BEPC
Key Data Points
Neha Chamaria (Brookfield Renewable): Shares of Brookfield Renewable (Brookfield Infrastructure's renewable-focused sibling) -- both units of the limited partnership and shares of the corporation -- are barely in the green so far this year. The renewable energy giant, however, is steadily growing its cash flows and dividends and has a sensible growth plan in place that could generate strong returns for patient shareholders in the long term.
Brookfield Renewable delivered a record first quarter in May, growing its FFO by 8% year over year. With its project pipeline also on track, the company expects to bring new renewable capacity worth nearly 7 gigawatts (GW) online this year.
That aside, Brookfield Renewable also sells mature assets opportunistically and expects to generate roughly $1.3 billion in proceeds from asset sales this year. At the end of the quarter, the company had nearly $4.4 billion of liquidity to invest in growth.
Brookfield Renewable also signed a first-of-its-kind agreement with tech behemoth Microsoft in Q1 to deliver 10.5 GW of renewable energy capacity between 2026 and 2030. The deal could open up similar opportunities for the company in the years to come.
Given the backdrop, Brookfield Renewable looks like a great stock to buy for the second half of 2024 and beyond. Management is, in fact, confident of growing FFO per unit by 10% this year, which should get the ball rolling for the coming years.
For now, Brookfield Renewable foresees 10% annual FFO growth through 2028, backed by its development pipeline and margin improvement, among other things. With the stock also yielding 5% and targeting annual dividend growth of 5% to 9%, Brookfield Renewable looks like one of those dividend stocks you might even want to double up on now.
