Three Dividend Shares Surged by 8%, 16%, and 17% in 2024, Making them Potential Buys in December
2024 is nearing its end, but there's still some time left in the year to discover profitable businesses worthy of investment. Some individuals might be on the hunt for rapid-growth stocks that still have potential for growth, while others may be interested in companies that can provide dividend income, regardless of the stock market's condition.
Dividend stocks allow investors to participate in the market without relying on the stock price rising to generate profits. This dividend income can be reinvested in the stock market, which can accumulate wealth over time.
Honeywell International (HON -1.01%), Enterprise Product Partners L.P. (EPD -0.23%), and Southern Company (SO 0.36%) have proved to be profitable and dividend-paying investments, increasing by 8%, 16%, and 17% respectively this year. Here's why these three dividend stocks are excellent options for investment in December.
A split of Honeywell could lead to significant value creation
Lee Samaha (Honeywell): Industrial conglomerate Honeywell is about to join the trend of splitting up, which has been popular for the past decade. Companies like United Technologies (now Otis Worldwide, Carrier Global, and merging with Raytheon Technologies to become RTX), General Electric (now GE Aerospace, GE HealthCare Technologies, and GE Vernova), and numerous other conglomerates have all followed this route. Honeywell's latest announcement suggests that it will likely follow the same strategy.
The company revealed that its board of directors will continue to evaluate its portfolio, including the potential separation of its Aerospace business. This move aligns with demands from an activist investor and makes sense given the high valuations in the aerospace sector – Honeywell's largest business.
On top of this, Honeywell has already announced its plans to spin off its advanced materials business in 2025 or 2026 and has agreed to sell its personal protective equipment business for $1.325 billion in cash.
Furthermore, other aspects of Honeywell's business portfolio, including industrial automation, building automation, and its 54% stake in the quantum computing business, Quantinuum, are positioned in promising markets.
For instance, another industrial company, Emerson Electric, has restructured its portfolio to focus on automation, and Johnson Controls is also restructuring to focus on commercial building automation. These portfolio adjustments promise to create value for shareholders, and investors can earn a current dividend yield of 1.9% (higher than the S&P 500's average of 1.3%) while they wait for updates.
Enterprise Products Partners is a cash machine strong in rewarding investors
Scott Levine (Enterprise Products Partners): Shares of Enterprise Products Partners have surged more than 16% since the start of the year, but don't let the rise in this pipeline stock deceive you. The stock still seems reasonably priced.
Between the price tag and the 6.7% forward dividend yield, Enterprise Products Partners offers a fantastic opportunity for income investors to boost their passive income streams.
Getting its name from being a "fully integrated midstream energy company," Enterprise Products Partners operates more than 50,000 miles of pipelines, as well as 20 deepwater docks and assets providing liquids storage capacity of over 300 million barrels. While some investors may be concerned about the stock's high dividend yield, a better understanding of the company's business should alleviate their fears that the payout could be unsustainable. Enterprise Products Partners frequently signs long-term contracts with customers, giving management a clear insight into future cash flows, which aids in planning for capital expenditures. Additionally, more than 90% of the company's long-term contracts have provisions to mitigate the impact of inflation.
For 26 consecutive years, Enterprise Products Partners has increased its payout, demonstrating a steadfast commitment to returning capital to shareholders. And it's worth noting that management hasn't compromised the company's financial stability to make investors happy. Over the past 15 years, for example, Enterprise Products Partners has averaged a distribution coverage ratio of about 1.5. More evidence of the company's strong financial position comes from S&P Global Ratings, Fitch, and Moody's assigning investment-grade credit ratings. With shares trading at 10.8 times forward earnings, now seems like the right time to add Enterprise Products Partners stock to your portfolio.
The dip in Southern Company presents a buying opportunity
Daniel Foelber (***Southern Company***): Southern Company is still up for the year but has dropped over 6% in the past month – falling in tandem with a broader sell-off in the utility sector. The sell-off has driven Southern Company's dividend yield up to 3.5%, making it an attractive passive income opportunity for patient investors.
Southern Company has electric operating companies in the Southeastern U.S., natural gas distribution and utilities, and power generation facilities across the U.S. in wind, solar, and natural gas. Southern Company has invested heavily in nuclear energy, operating eight plants, including Vogtle Units 3 and 4, which are the first nuclear units to reach commercial operation in the U.S. in the last 30 years.
Southern Company's diverse portfolio of electric utility and power generation assets provides the company with stable cash flows that can support dividend increases. Over the past 20 years, Southern Company's dividend has nearly doubled, providing a solid but not overly rapid growth rate, and the company has raised its dividend every year during this period.
Southern Company collaborates with administrative bodies to determine client rates, which lessens earnings yet guarantees consistency regardless of the economy's condition. Consequently, investments in utility companies such as Southern Company are advantageous for cautious investors seeking reliable passive income during retirement.
The array of traditional fuels, wind, solar, and nuclear energy expertise that Southern Company offers makes it a desirable pick for individuals advocating for an assorted energy blend. Additionally, with a 20.4 pricing to earnings ratio proposition for the future, Southern Company isn't excessively pricey, making it a strong option for December.
- Given the potential split of Honeywell International, investors might consider this as an opportunity to enter the finance market, as dividend income from HON could increase further due to potential value creation from the company's strategic moves.
- Enterprising individuals who are interested in investing in the energy sector might find Enterprise Product Partners L.P. appealing, considering its consistent dividend growth, long-term contracts, and resilience to inflation, which could provide stable income streams for their finance portfolios.
