As 2024 draws to a close, now’s a great time to reflect on your financial journey and look for stocks that can help you achieve your goals in 2025 and beyond. If your goals include generating passive income, then you’ve come to the right place.
Freeport-McMoRan (NYSE:FCX), York water (NASDAQ: YORW)And PepsiCo (NASDAQ: PEP) are all down this year, while the broader indices are hovering around record highs. Here’s what makes all three dividend stocks attractive to buy before the new year.
Lee Samaha (Freeport-McMoRan): With a dividend yield slightly above S&P500 With an average price of 1.3% and a share price 32% off its all-time high, this copper miner is a good candidate for dividend stocks. Furthermore, the growth prospects will likely make it easier for management to increase the dividend in the future.
The stock is often seen as a play on the copper price. That’s an understandable view, as it’s the main driver of revenue. As such, it’s not a stock worth buying unless you’re bullish on the price of copper. Yet that is not the case all there is the investment case; there are two other important reasons to buy the stock.
First, even if you are neutral on the price of copper and willing to assume it will remain at current levels (about $4.25 per pound), there are strong arguments for buying the stock. For example, management estimates that earnings before interest, taxes, depreciation and amortization (EBITDA) will be $11 billion at $4 per pound and $15 billion at $5 per pound in 2025/2026.
Interpolating these figures to include the current copper price leads to an EBITDA estimate of $12 billion. The current enterprise value (market capitalization plus net debt) of $65.9 billion implies an EV/EBITDA ratio of just 5.5 in 2025/2026, an excellent value.
Second, as previously discussed, Freeport-McMoRan has an exciting leaching initiative that could significantly increase copper production at a relatively low cost. As such, the stock is an excellent value for copper bulls and investors willing to take a neutral stance on the copper price.
Scott Levine (York Water): York Water is a water company stock that deserves strong attention for those looking to boost their passive income streams in 2025.
While the shares are down 9% so far this year, investors shouldn’t hesitate to drink up the shares, as this seems more likely to be a result of the market unfairly punishing the stock for missing third-quarter earnings estimates . York Water offers a forward dividend yield of 2.5% and has a decades-long commitment to rewarding shareholders, and the stock’s appeal is currently further enhanced by its attractive price tag.
Smart investors know that a company’s past performance is no guarantee of future results. But that doesn’t mean a company’s history isn’t worth researching, especially if that history spans more than two centuries. York Water has been providing water services since 1816, and in that time it has consistently rewarded investors with dividends, making 616 dividend payments and increasing the dividend for the past 28 consecutive years.
How did the company achieve such an impressive feat? York Water operates as a regulated utility and has a guaranteed return.
This therefore gives management a sense of future cash flows and insight into capital expenditure planning, including infrastructure upgrades, acquisitions and dividend payments. For example, in 2024, York Water allocated $33 million to upgrade the Lake Williams Dam, as well as build a wastewater treatment plant and other projects.
Currently, York Water shares are changing hands at 14.9 times operating cash flow, which represents a discount to their five-year average cash flow multiple of 20.3. York Water looks especially attractive to those looking to quench their thirst for a reliable dividend stock right now.
Daniel Foelber (PepsiCo): It’s been a solid year for the consumer staples sector, which is up more than 13% year to date. Sure, it’s not as good as the S&P 500, but the sector tends to underperform the growth-driven rallies in the major indexes because many of the top holdings are solid companies with low to moderate growth.
The sector is unlikely to be attractive to risk-tolerant investors looking for a lot of upside potential. However, companies like Pepsi are tailor-made for people who want to increase their passive income or supplement their income in retirement.
On November 19, the food and beverage giant increased its dividend for the 52nd year in a row, increasing the payout to $5.42 per year. As of this writing, that would translate to a 3.4% return – which is a decade high if you ignore the brief spike in Pepsi’s returns during the COVID-19-induced stock market sell-off excludes in March. 2020.
As you can see from the chart, Pepsi is trading at a discounted price-to-earnings ratio of 23.3, compared to its 10-year average price-to-earnings ratio of 26.1. So Pepsi checks all the boxes regarding its dividend track record, yield and valuation. But there are valid reasons why Pepsi is a relatively cheap stock.
Pepsi’s growth has stalled. Through the first three quarters of 2024, Pepsi’s ready-to-drink food volume fell 2% and beverage volume fell 1%. The company is still targeting a 7% increase in core earnings per share in 2024 compared to 2023, but that is largely due to price increases.
Management has been outspoken about price sensitivity on recent earnings calls and is driving consumer value through new marketing ideas and increased product quantities. While these ideas could increase volumes, they are likely to lead to lower margins in the short term. 2025 will be a year for Pepsi to regain its position so that profit growth is not so dependent on price increases.
Despite the problems, Pepsi is still an incredibly profitable company with a high-quality supply chain and distribution network that continues to expand its portfolio and acquire new brands. On October 1, Pepsi purchased Siete Foods for $1.2 billion. The company makes tortillas, salsas, seasonings, sauces, cookies and snacks. On November 22, Pepsi acquired the remaining 50% stake in hummus and spread giant Sabra Dipping Company LLC and PepsiCo-Strauss Fresh Dips & Spreads International GmbH. This move will expand Pepsi’s coverage in on-the-go snacks.
Pepsi has a diverse range of brands covering virtually every category of non-alcoholic beverages and snack products, under the names Frito-Lay and Quaker Oats, owned by Pepsi. Given its highly diversified product lineup, Pepsi is a great buy for those looking for a reliable dividend-paying company at a reasonable valuation.
Consider the following before purchasing shares in Freeport-McMoRan:
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 Freeport-McMoRan wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $808,966!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns December 16, 2024
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 has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
3 Dividend Stocks Down 2%, 7% and 10% to Buy Before the New Year was originally published by The Motley Fool
