The dividend yield on the average stock has experienced a notable decline over the past year, primarily attributed to the remarkable surge in the stock market. For instance, the S&P 500‘s dividend yield has decreased from 1.6% a year ago to approximately 1.2% currently, marking one of the lowest levels observed in over two decades. This trend highlights the challenges investors face in finding attractive income-generating opportunities amid a rising market.
Nevertheless, there are still stocks that provide significantly higher-yielding dividends. Enterprise Products Partners (EPD 1.51%), Clearway Energy (CWEN 0.46%) (CWEN.A 0.91%), and Brookfield Renewable (BEP 1.59%) (BEPC 2.24%) have been highlighted by several Fool.com contributors as outstanding stocks to consider as we approach the new year. These stocks are regarded as excellent income-generating investments for various reasons, which we will explore further.
Why Invest in Enterprise Products Partners for Reliable Income Generation
Reuben Gregg Brewer (Enterprise Products Partners): Imagine acquiring shares in an investment-grade-rated energy company that boasts an astonishingly reliable business model and a generous 6.5% yield. If this prospect sounds appealing, then now is the time to consider investing in North America’s leading midstream operator, Enterprise Products Partners, before the year 2024 concludes.
From a business standpoint, this high-yield investment owns the essential energy infrastructure that facilitates the movement of oil and natural gas globally. The energy sector relies heavily on the pipelines, storage facilities, transportation networks, and processing assets that Enterprise possesses. Its customers willingly pay the necessary fees to utilize this critical infrastructure, effectively positioning the master limited partnership (MLP) as a reliable toll-taker business model.
The key takeaway here is that the fluctuations in commodity prices do not primarily dictate financial performance. This factor significantly contributes to Enterprise’s impressive track record of increasing its distributions for 26 consecutive years. The company’s robust investment-grade-rated balance sheet, combined with a distributable cash flow that covers the distribution by approximately 1.7 times, provides substantial assurance against any material risk of a distribution cut in adverse situations.
While the attractive yield will constitute a major portion of an investor’s total return, Enterprise is also actively engaged in around $6.9 billion worth of capital investment projects, positioning itself as a potential consolidator within the industry. With a steady and gradual increase in distributions anticipated to continue for years, investors can look forward to sustained income growth from this reliable high-yield stock.
Unlocking the Potential for Dividend Growth with Clearway Energy in 2025 and Beyond
Matt DiLallo (Clearway Energy): Clearway Energy currently presents investors with an attractive 6.5% dividend yield. This payout is significantly higher when compared to the S&P 500, which currently yields around 1.2%. Such a disparity makes Clearway a compelling option for income-focused investors.
The clean energy infrastructure company is enjoying another robust year, poised to meet or exceed its guidance of generating $395 million in cash available for distribution (CAFD) this year. This strong performance has empowered the company to increase its dividend by 7% over the year, aligning with its goal of achieving dividend growth within its targeted range of 5% to 8% annually.
Looking ahead, Clearway has already set the stage for substantial growth in 2025 and beyond. The company anticipates that previously funded investments will boost its CAFD to an impressive $420 million at the mid-point of its target range. This growth trajectory should enable it to increase its dividend by approximately 6.8% over the coming year, reflecting a commitment to returning value to shareholders.
Moreover, Clearway is not resting on its laurels. It has secured several new investments in renewable energy projects, which are expected to come online in the next year. Additionally, the company is actively pursuing new contracts for its natural gas-fired power plants. These strategic initiatives are likely to contribute to a compound annual growth rate of CAFD per share in the range of 7.5% to 12.5% for the 2026 to 2027 period, establishing a solid foundation for future dividend increases.
In fact, investors can anticipate another 6.5% increase in the dividend for 2026, with growth expected to continue toward the lower end of its target range in the subsequent year. Beyond 2027, Clearway sees the potential to sustain its CAFD and dividend growth at a mid- to high-single-digit annual rate as it consistently invests in new renewable energy assets. This growth strategy positions Clearway as an appealing income stock for those looking to capitalize on a high yield combined with future growth.
Brookfield Renewable: A Promising Future for Dividend Growth
Neha Chamaria (Brookfield Renewable): Despite having significantly underperformed the S&P 500 in 2024, Brookfield Renewable showcases ambitious growth plans and has been steadily increasing its funds from operations (FFO), resulting in larger dividend distributions to its shareholders each year. This resilience in the face of market fluctuations makes it an intriguing investment opportunity.
Brookfield Renewable reported a remarkable 7% growth in its FFO per unit during the nine months ending September 30 and anticipates exceeding 10% growth for the entire year, driven by its recent acquisitions and ongoing development projects. The company is looking forward to 2024 as it aims to achieve record investments in growth, leveraging both cash-flow growth and proceeds from the sale of mature assets to fuel its expansion.
In the upcoming year alone, Brookfield Renewable plans to commission an impressive 7 gigawatts (GW) of renewable energy capacity, setting a new record for the company. At the end of the third quarter, its total development pipeline expanded to an astonishing 200 GW, with further growth anticipated in 2025 and 2026. This robust pipeline positions Brookfield Renewable to potentially grow its annual FFO per unit by 10% or more over the next five years and beyond, solidifying its status as a key player in the renewable energy sector.
For investors, the growth in Brookfield Renewable’s FFO should translate to larger dividend payouts. The company expects to increase its annual dividend by 5% to 9%, creating a compelling investment case. Coupled with a competitive dividend yield—currently at 5.1% for corporate shares and 6.3% for partnership units—Brookfield Renewable emerges as a strong dividend stock to consider before the year 2024 comes to an end. Moreover, purchasing corporate shares allows U.S. investors to avoid the complexities of filing a K-1 tax form and foreign tax withholding, making it an even more attractive option for income-seeking investors.
Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, Clearway Energy, and Enterprise Products Partners. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable, Brookfield Renewable Partners, and Enterprise Products Partners. The Motley Fool has a disclosure policy.
