The utility industry isn’t exactly known for its growth, but that doesn’t mean you can’t find it if you’re willing to look. And dividend growth is exactly what you benefit from Brookfield Renewable(NYSE:BEP)(NYSE: BEPC), NextEra Energy(NYSE: NO)And American waterworks(NYSE: AWK).
These three stocks represent three very different companies lumped together with the normally slow-growing utility sector. Here’s why you might want to buy these dividend growth stocks as November kicks off.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
Of the three stocks here, Brookfield Renewable will have the biggest dividend appeal. That’s because the partnership share class (BEP) has a lofty 5.6% yield. The corporate share class (BEPC), which for all intents and purposes represents the same entity, has a dividend yield of 4.7%, a function of the greater demand for corporate shares that trade under a different (less complicated) tax structure.
These return figures are further enhanced by the fact that the distribution (or dividend, depending on which share class you’re looking at) has grown at an annual rate of 6% since 2001. Looking ahead, the target is growth between 5% and 9% per year. year.
That is a very attractive combination of growth and income. But the real story is Brookfield’s focus on renewable energy, which is expected to increase demand for years to come. This vision is supported by the global shift from carbon-based energy to cleaner energy sources such as solar and wind energy.
Brookfield is a one-stop shop in renewable energy, with hydro, solar, wind and storage assets across a portfolio with global reach. If you like dividend growth and high returns, this is the opportunity to consider first.
If you’re not quite ready to go all-out on clean energy, don’t worry. That’s not necessary. You can buy a utility like NextEra Energy that offers a mix of traditional regulated utilities and clean energy.
That’s what underpins this company’s 2.6% yield and massive 10% annualized dividend growth over the past decade. That growth rate is no fluke; Management targets dividend growth of 10% until at least 2026.
The clean energy side of the business is the growth engine as the company continues to invest in solar and wind energy. Like Brookfield Renewable, NextEra Energy appears to be in the early innings of a long growth game.
But don’t forget the company’s regulated utilities, which largely consist of Florida Power & Light. That is one of the largest electric utilities in the country and has long benefited from migration to the Sunshine State. More customers means more turnover and more need to invest in growth projects.
You can earn higher returns elsewhere in the utility sector, but the dividend growth offered by NextEra Energy will be difficult to replicate.
American Water Works is one of the largest publicly traded water companies. Currently it offers a yield of 2.2%. That’s the lowest dividend yield of the three and certainly doesn’t sound huge, but it’s above the company’s five-year average yield, which is about 1.7%. This indicates that the share is currently attractively priced.
Add to that the ten-year annualized dividend growth of just under 10%, and the story becomes even more compelling.
That said, American Water Works is probably the most boring option from a business perspective. It owns and operates water and wastewater systems.
But water is clearly essential to life. And America’s water system is old and needs major improvements driven by capital investment. That’s the opportunity, with American Water Works’ five-year capital investment plan for up to $18 billion, and the 10-year plan for up to $42 billion.
All of this spending will help support regulated interest rate growth of between 8% and 9% per year. Now this boring stock will suddenly look a lot more exciting, considering that the 7% to 9% dividend growth target is also quite compelling.
Like any other industry, the utilities industry is made up of individual companies. Yes, many companies are boring, slow-growing companies. But there are a few gems in there that buck the trend in a really good way.
Brookfield Renewable, NextEra Energy and American Water Works are three of them. If you like dividend growth stocks, you’ll likely find them all attractive as we enter the month of November.
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Amazon: If you had invested $1,000 when we doubled in 2010, you would have $23,324!*
Apple: If you had invested $1,000 when we doubled in 2008, you would have $42,133!*
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $420,761!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns November 4, 2024
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Brookfield Renewable and NextEra Energy. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
3 Dividend Growth Stocks That Are Screaming Buys in November was originally published by The Motley Fool
