3 Phenomenal Dividend Stocks to Buy Before It’s Too Late

The stock market has set several new all-time highs this year. Because of this, most stocks are on the rise, which leaves fewer bargains.

However, there are some stocks that still look like great deals. American Water Works (AWK 0.29%), Enbridge (ENB 1.59%)and Clearway Energy (CWEN 1.67%) (CWEN.A 1.65%) stand out to three Fool.com contributors right now because of their compelling investment potential. However, this may not last, which is why investors may want to scoop up these phenomenal dividend stocks before it’s too late.

A strong dividend growth stock

Neha Chamaria (American Water Works): American Water Works shares are yielding just over 2%. That dividend yield may disappoint income investors, but even low-yielding stocks can be great investments if they pay regular, steadily growing dividends backed by earnings and cash flow growth. You’d be surprised to know that with reinvested dividends, American Water Works stock has more than tripled investors’ money in just 10 years!

That’s how strong dividend growth stocks can be. And with American Water Works stock’s one-year performance flat at the time of writing, you may want to pick up some shares before it’s too late. After all, its stable business model and attractive long-term financial goals are too compelling to ignore.

American Water Works has been around for more than 135 years and is the largest regulated water and sewer company in North America today. It serves nearly 14 million people in 14 states and 18 military installations. Because it is a regulated business, American Water Works can generate stable and predictable cash flows. And to grow its cash flows, all it needs to do is regularly invest in its infrastructure to get rate hike approvals while taking advantage of acquisition opportunities on the fly. For example, the company expects to invest $3.1 billion in infrastructure improvements this year and has nearly $483 million worth of upcoming purchases.

Backed by a steady growth rate and acquisitions, American Water Works expects to grow its earnings per share (EPS) at a compound annual growth rate of 7% to 9% over the long term. Here’s the best part: The water stock also aims to grow its dividend in line with EPS, or 7% to 9% per share each year. Now that’s solid dividend growth, and coming from a utility, it should be safe and bankable. too.

Enbridge provides the necessary energy

Reuben Gregg Brewer (Enbridge): Enbridge is usually grouped with midstream companies. That’s perfectly fitting, since 75% of its earnings before interest, taxes, depreciation and amortization (EBITDA) come from oil and natural gas pipelines. However, that doesn’t really do the business justice, as Enbridge’s purpose is to provide the world with the power it needs.

In fact, the remaining 25% of EBITDA is derived from natural gas (22%) and renewable energy (3%) utilities. Natural gas is expected to be a transition fuel as the world moves away from dirtier forms of energy such as coal and oil. Renewable energy such as solar and wind is clearly the long-term direction of the energy sector, although it is still a relatively modest contributor to the global grid today. The plan is to continue changing the mix towards cleaner alternatives as demand grows.

ENB data by YCharts

That’s the business that supports Enbridge’s dividend, which currently yields 6.8% and is backed by an investment-grade balance sheet and a distributable cash flow payout ratio that’s comfortably within management’s target range. The business model has supported the 29 annual dividend increases the company has accumulated. Lo and behold, Enbridge’s yield was over 7.5% not long ago, before the stock started to rally. Basically, investors are starting to appreciate Enbridge’s business approach a little more. If this continues, the still-attractive yield here may not last much longer.

This sale may be about to end

Matt DiLallo (Clearway Energy): Shares of Clearway Energy are currently about 30% below their high since early 2022, just before the Federal Reserve begins raising interest rates. Higher rates made it more expensive for companies to borrow money, which slowed growth. Rising rates also hurt the value of higher-yielding dividend stocks like Clearway. Their stock prices fall to make their dividend yields rise, making them more attractive investments compared to lower-risk options like bonds. In Clearway’s case, its sales have driven its dividend yield up to nearly 6%.

That high yield could not last much longer. The Federal Reserve appears poised to start lowering interest rates. As that happens, the share prices of high-yield stocks like Clearway should rise as they gain favor with investors, driving their yields down.

This catalyst adds to Clearway’s long-term persuasiveness total return potential. The clean energy producer plans to raise its dividend toward the upper end of its annual target range of 5% to 8% through 2026, a phenomenal growth rate for such a high-yielding stock. The power of this plan is his capital recycling strategy. It sold its district heating business a few years ago and redeployed the proceeds into higher-return investments in renewable energy. It recently signed agreements to distribute the remaining proceeds from that sale, giving it clear visibility to reach its current dividend growth target.

The company is already working to extend its growth visibility into 2027 and beyond. Recent contract renewals for its natural gas-fired power plants reach a level that could drive dividend growth toward the lower end of its 2027 target. In addition, the company has made offers to acquire additional renewable energy assets that he can finance them with his help. existing financial capacity. In the meantime, if interest rates fall, it can finance purchases externally again, which could allow to grow faster in the future.

Investors currently have an opportunity to lock in Clearway’s high dividend yield while interest rates remain high. Additionally, Clearway offers high upside potential from a future recovery in its share price as rates decline and may accelerate its growth rate.