Dividend investors looking for opportunities today should start with companies that have a strong track record of growing their dividends. After that, you should look for stocks with historically high yields, which suggests the shares may be trading at attractive prices. Three actions that pass these two screens are Hormel Foods (NYSE:HRL), Black Hills Society (NYSE:BKH)And Enbridge (NYSE:ENB). Here’s a quick look at what each of these historically cheap dividend stocks is doing.
1. Hormel is not operating at full capacity
Hormel Foods is probably best known for creating Spam, but it has a large collection of segment-leading brands. THE food manufacturer The 3.5% dividend yield is near the highest levels in the company’s history, suggesting the stock is in the bargain bin. This is not a short-term thing; the company has been in difficulty for several years. But that didn’t stop it King of dividends to increase its dividend, with a streak which now reaches 57 years.
The good news is that none of the issues facing Hormel are likely to be permanent headwinds. For example, it has not been able to pass on rising costs through price increases as successfully as its peers. Time should fix that. Its turkey business has been hampered by a difficult environment linked to avian flu, which is also likely to be a temporary problem. China’s economic recovery has been slower than expected, another problem that should resolve itself over time. And the company’s Planters brand faces a tough nut market, but the business has outperformed the segment. All told, Hormel is in trouble, but it doesn’t appear that any of these challenges will change the long-term story of 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 the dividend king. Its yield of 4.6% is close to its highest levels over the past decade, suggesting the stock is attractively priced today. That said, with a market cap of just $3.6 billion, it’s a relatively small utility, so many investors may not have heard of it. One reason the yield is so high, meanwhile, is that 2023 was in some ways a reset year, as the company shifted its cash flow from capital investments to debt reduction. Rising interest rates played a significant role in this decision, but capital spending is expected to pick up again in 2024 and beyond.
That said, there are some things to like about this utility. First, while it’s not exciting, it’s very reliable. Its status as Dividend King is proof of this. But it helps that Black Hills is a regulated utility, meaning it must have its rates and spending plans approved by the government. Although this limits upside potential, it generally leads to slow, steady growth over time. Second, the regions in which the company operates have seen customer growth nearly three times faster than U.S. population growth. An expanding customer base points to 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 been increasing 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’s pretty impressive. The company’s yield, meanwhile, reached a historically high level of 7.3%.
Enbridge owns the infrastructure that moves oil and natural gas around the world, including pipelines, storage and transportation assets. It also owns a natural gas utility and renewable energy assets. All of these activities provide reliable cash flow through fees, regulation, or long-term contracts. So even highly volatile energy prices do not have a major impact on the business, because it is the demand for Enbridge’s assets that is important, not the price of the raw materials flowing through them. . The one thing investors need to understand with Enbridge is that the yield will likely account for the lion’s share of your return, as growth opportunities are limited in the midstream sector. But if you’re looking to maximize the income you get from your portfolio, this probably won’t be a problem.
Don’t rush, but don’t drag
The issues that have pushed the yields of these three dividend stocks to all-time highs aren’t 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’s highly likely that they will eventually be appreciated by Wall Street again. And when that happens, yields will fall and they won’t seem as cheap as they do today.
Should you invest $1,000 in Enbridge right now?
Before buying Enbridge stock, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Enbridge wasn’t one of them. The 10 selected stocks could produce monster returns in the years to come.
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor The service has more than tripled the performance of the S&P 500 since 2002*.
*Stock Advisor returns as of January 8, 2024
Ruben Gregg Brewer holds positions at Black Hills, Enbridge and Hormel Foods. The Motley Fool has positions with and recommends Enbridge. The Motley Fool has a disclosure policy.
3 Incredibly Cheap Dividend Stocks was originally published by The Motley Fool
