These 3 Dividend Stocks Are Outpacing the S&P 500 and Nasdaq Composite in 2024 and Could Still Have More Room to Run

The most exhilarating investment decisions often involve putting your hard-earned money to work in exciting companies that are successfully disrupting industries and growing in value multiple times over. But not every investment has to be a home run.

In fact, role players can act as foundational holdings that form the foundation of a solid portfolio. American Electric Power (AEP -0.17%), Carrier Global (CARR 2.56%)and Wm (Wm -0.29%) you don’t have the glitz and glamor of a high-flying growth stock. But all three companies have what it takes to consistently grow earnings and return shareholder value over the long term.

Here’s why these fool.com contributors think all three dividend stocks outperform S&P 500 and Nasdaq Composite in 2024 and could still be worth buying now.

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Income investors will want to connect to this utility

Scott Levine (American Electric Power): Outpacing impressive gains in both the S&P 500 and Nasdaq Composite, shares of electric utility American Electric Power are up more than 27% year-to-date.

AEP data by YCharts.

The stock has performed well in 2024, and investor interest in the dividend stock with its 3.4% forward yield could continue to remain strong, sending the stock even higher in the coming months.

With American Electric Power’s impressive performance in 2024, it’s no surprise that investors felt motivated to click the buy button. For example, the utility posted strong growth in its funds from operations (FFO) for the 12 months ended June 30. Its FFO of $6.39 billion represents an increase of 11.5% from $5.74 billion for the 12 months ended December 31, 2023.

Management’s auspicious vision of the future also inspired investors. For 2024, American Electric Power projects operating earnings per share of $5.53 to $5.73. Should it hit the midpoint of this guidance, it would represent 7.2% growth from 2023. Investors will want to pay close attention to this measure, as management is targeting a payout ratio of 60% by 70% of operating earnings for 2024 to 2028.

While the utility’s shares have rallied in 2024, it appears the stock is still undervalued. It currently trades at 8.5 times operating cash flow, a discount to the industry average multiple of 9.5.

The market continues to reward this portfolio restructuring

Lee Samaha (Global Carrier): In 2020, this company was spun off from the former United Technologies (with a long history of dividend growth itself, which Carrier has continued). As part of a vast industrial conglomerate that includes elevators, defense and aerospace products, Carrier might not be as nimble in the rapidly changing heating, ventilation and air conditioning (HVAC) industry as it would like to be.

The industry is at the forefront of the movement towards energy efficient and sustainable buildings and the use of digital technology to improve this. With Carrier’s independence set for 2020, CEO Dave Gitlin could focus on this growth opportunity while shedding non-core businesses and restructuring the company for growth.

It is finally ready for its future as an HVAC company. Its Chubb fire and security business was sold for an enterprise value of $3.1 billion in 2022. Honeywell bought Carrier’s global access solutions for an enterprise value of $4.95 billion in June 2024, and Carrier sold its industrial fire detection and suppression business for $1.425 billion in July. Management also recently announced an agreement to sell its commercial and residential fire detection business for $3 billion.

Among these substantial divestments, Carrier acquired European climate technology company Viessmann Climate Solutions for $12 billion in early 2024. The deal strengthens Carrier’s global position in heat pumps, a more efficient technology than boilers.

The European Union aims to install an additional 30 million heat pumps between 2020 and 2030, creating ample growth opportunity for Viessmann (Carrier). And with its existing HVAC solutions that improve building efficiency, Carrier has many years of growth ahead.

The WM stock pullback is a buying opportunity

Daniel Foelber (WM): WM, formerly known as Waste Management, is down about 8 percent from its all-time high in July. But it’s still beating the S&P 500 and Nasdaq Composite this year.

In its second quarter 2024 results, WM achieved an adjusted operating margin for earnings before interest, taxes, depreciation and amortization (EBITDA) of 30% for the first time in its history. Cost optimization and price increases help WM gain free cash flow (FCF) and expand margins.

Strong cash FCF generation enables WM to aggressively invest in sustainability projects such as recycling and renewable natural gas (RNG). As organic material decomposes in a landfill, it produces methane that can be captured as landfill gas, treated and turned into pipeline-grade natural gas. It is a sustainable alternative to extracting natural gas from fossil fuels, but the industry is still heavily dependent on subsidies.

A network of dumps makes it one of the best-positioned companies to unlock long-term growth from RNG. But even without it, WM is still a highly reliable, recession-proof business.

WM has commercial, industrial and residential customers. Economic growth can lead to greater demand for waste disposal. But even during a recession, the company’s long-term contracts help protect it from slowing demand. The consistent business model makes WM an excellent and safe stock for risk-averse investors.

WM only has a dividend yield of 1.4%, which is not very impressive at first glance. But the low yield is more a result of WM stock’s strong performance than a lack of dividend increases. Over the past decade, WM has doubled its dividend and reduced its share count by more than 12% thanks to share buybacks.

With a price-to-earnings ratio of 33.1, WM is not a cheap stock by any means. Valuation concerns, weak volume growth and over-reliance on price increases could be why the stock has retreated from its highs in recent months.

Still, WM has plenty of qualities that make it a reliable dividend stock no matter what the economy does. It is an excellent choice for investors to consider now.