Investing in dividend stocks with a widening earnings base is among the best investment strategies for long-term shareholders. A growing base of cash flows should translate to consistent dividend hikes, enhancing the effective yield over time. Further, investors should also benefit from share price appreciation or long-term capital gains, increasing the cumulative returns in the process.
Here are two such dividend stocks I’m buying in May 2024.
Brookfield Renewable Partners stock
After trailing the broader markets in the last two years, shares of Brookfield Renewable Partners (TSX: BEP.UN) have surged roughly 35% in the past month. Valued at $25 billion by market cap, BEP pays shareholders a quarterly dividend of US$0.355 per share, indicating a forward yield of 5.1%.
BEP is among the largest clean energy companies globally and is positioned to benefit from the worldwide shift towards renewables as countries look to fight climate change.
In the first quarter (Q1) of 2024, Brookfield Renewable reported US$296 million in funds from operations (FFO), or US$0.45 per share, up 8% year over year. It indicates a payout ratio of 79%, which provides the company with the flexibility to target acquisitions and lower balance sheet debt.
Despite an uncertain macro environment, BEP is positioned to increase its FFO by 10% in 2024, which should result in further dividend hikes. Brookfield Renewable first paid shareholders a dividend in 1999. In the last 25 years, the renewable energy giant has raised its payout by 6% annually.
Brookfield Renewable has an operational capacity of 34 gigawatts and is expected to add another seven gigawatts in 2024. Moreover, it has 157 gigawatts of projects in various stages of development, which provides investors with enough visibility while allowing it to grow cash flow and dividends higher.
NextEra Energy stock
Similar to Brookfield Renewable, shares of NextEra Energy (NYSE: NEE) have also trailed the broader markets. In the last two years, interest rate hikes raised the cost of debt significantly for capital-intensive companies part of sectors such as real estate, utilities, and energy.
However, the pullback allowed shareholders to buy the dip and benefit from outsized gains when market sentiment recovered. In the last month, NextEra stock has surged close to 25%, valuing the utility giant at a market cap of US$158 billion.
A key driver of share prices in the past month for NextEra and Brookfield Renewable is the rosy outlook for rising power demand in the United States. After years of marginal power growth, several reports have highlighted that future growth will be driven by multiple industries, such as oil and gas, manufacturing, and technology.
During the Q1 earnings call, NextEra chief executive officer John Ketchum emphasized, “The redomestication of industry in the U.S., supported by public policy, will drive the need for more electricity, and the tech industry is going to need data centers to support the expected cloud capacity demands that come with artificial intelligence applications.”
Priced at 22.6 times forward earnings, NEE stock might seem expensive compared to other utility companies. However, once interest rates move lower, its adjusted earnings growth should accelerate.
The utility giant has increased its dividends for 30 consecutive years, and its average annual dividend growth rate has been around 11% in the past decade.
