During a rising stock market, it can be easy to overlook the benefits of dividend-paying companies. But when stocks are selling off, a dividend can provide an attractive incentive to hold on to a stock during periods of volatility. Dividends also generate income without the need to sell or reduce a position, which is a great way to supplement income or generate additional money that can be reinvested in the market.
Companies that pay dividends and trade at reasonable multiples to their earnings provide income and value that is ideal for a risk-averse investor. here’s why Essential Utilities (NYSE:WTRG), Equinor (NYSE:EQNR)And Speed ​​Energy (NYSE:VTS) are three dividend stocks It’s worth buying now.
Quench Your Thirst for Cheap Dividends With This Water Stock
Scott Levine (Essential Utilities): Successful investors know the importance of striking when the iron is hot. Now seems to be one of those times for Essential Utilities. It is one of the largest water utilities in terms of market capitalization. Essential Utilities stock, which currently offers a forward dividend yield of 3.3%, is suspended on the discount shelf.
While high-yielding dividend stocks are attractive, it’s important to test the waters before jumping into an investment, to confirm that the company is in good financial health and capable of sustaining significant distributions. This is certainly the case with Essential Utilities.
The company’s bread and butter is its regulated markets business, which accounted for 98% and 97% of operating revenues in 2023 and 2022, respectively. This helps give management excellent insight into the company’s future cash flows. the company. As a result, management can plan capital expenditures, such as dividends to reward shareholders and acquisitions to help support company growth.
In the first quarter, Essential Utilities announced it had six pending acquisitions valued at approximately $385 million, representing more than 215,000 customers. As a reminder, Essential Utilities had around 1.9 million customers at the end of 2023.
Those motivated to jump into this leading water utility should be happy with its current valuation. Essential Utilities shares trade at a price-to-earnings (P/E) ratio of 17.6, a notable discount from their five-year average of 29.8 and the S&P500The P/E of 28.2.
An oil giant accelerating its investments in renewable energies
Daniel Foelber (Equinor): Over the past quarter, Norwegian energy giant Equinor did pretty much exactly what it told investors. It continued to increase its oil and gas production at a modest pace of 3% internationally, made new discoveries off the coast of Norway, invested in renewable energy (mainly wind and offshore solar) and returned a considerable amount of money to shareholders in the form of dividends and buybacks.
Equinor finalized the first tranche of its 2024 share buyback program in April and reaffirmed its intention to distribute total capital of $14 billion in 2024, including buybacks and dividends. It plans to spend up to $6 billion on buybacks this year, and between $10 billion and $12 billion between 2024 and 2025. It paid an ordinary dividend of $0.35 per share and a special dividend of $0.35 per share. dollar per share and plans to increase the cash dividend by 2.% per year.
By combining dividends and buybacks, Equinor estimates to offer investors a return of 17% this year. Needless to say, Equinor’s capital repayment program is significantly larger than its peers – making the company a great choice for income investors.
Equinor was one of the few integrated majors not to double down on fossil fuels. Instead, it continues to invest in renewable energy projects and chart a path forward to reduce oil and gas production over time. Part of the pressure comes from Norway’s energy policy, with 75% of Equinor owned by the Norwegian state and private Norwegian owners.
Equinor’s renewable energy production has seen rapid growth, up 48% compared to the same quarter last year. But so far, renewable energy projects have not been a good use of capital compared to oil and gas. Equinor is trying to de-risk its 500 MW Empire Wind 1 project off New York by bringing in a new partner that will reduce its capital expenditure. It has secured a new offtake contract and project financing and now expects to produce a nominal return on equity of between 12% and 16% from its US East Coast offshore wind portfolio. , which is decent but not great.
Overall, Equinor’s renewable energy plans have yet to bear fruit. And to avoid taking one step forward and two steps back in its investments in fossil fuels, it decides to buy back a ton of shares and pay a generous dividend. Equinor is a good choice for investors who believe in the energy transition and agree with its use of capital. The stock is very cheap and trades at a forward price-to-earnings (P/E) ratio of 8.1, significantly lower than the American giants. ExxonMobil And Chevronboth of which have forward P/E ratios above 12.
With a forward dividend yield of around 10% – including both its ordinary payout and its expected extraordinary dividend – Equinor is an excellent source of passive income that is worth considering now.
Vitesse Energy dividend is a priority
Lee Samaha (Energy Speed): As the market continues to place low valuations on energy companies, it’s no surprise that the sector is in a trading frenzy. Thus, some high-dividend oil and gas exploration and production companies, such as Devon Energy And Diamondback Energyare focusing this year more on acquisitions and share buybacks than on dividends.
Like Devon and Diamondback, Vitesse is also gushing cash and trading on excellent free cash flow (FCF) yield. However, Vitesse’s acquisition activity (investing in development assets in its central North Dakota region) is much more piecemeal and consistent with its usual strategy.
Vitesse is not an asset owner/operator. Instead, it invests in minority stakes in wells operated by established partners. As of May, Vitesse held interests in 6,932 wells with an average working interest of 2.7% per well.
Unlike Devon and Diamondback (who pay a fixed amount And variable dividend), Vitesse simply pays a fixed dividend. It currently stands at $0.525 per quarter or $2.10 per year, representing an 8.2% yield at the current price. As such, Vitesse offers a great option for investors who are bullish on energy prices (ultimately the profits and cash flow of all three are determined by the price of oil) and who prefer upfront dividends .
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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Chevron and Vitesse Energy. The Motley Fool recommends Equinor Asa. The Motley Fool has a disclosure policy.
It’s Time to Pounce: 3 Dividend Stocks Too Cheap to Ignore was originally published by The Motley Fool
