High-yielding dividend stocks have underperformed in recent years. Higher interest rates have weighed down many.
However, that could be about to change, given the expectations that the Federal Reserve will start cutting interest rates soon. That's left several high-quality, high-yield dividend stocks looking like screaming buys this September for those seeking income and upside potential. Three top ones to buy this month are Kinder Morgan(NYSE: KMI), Brookfield Renewable(NYSE: BEPC)(NYSE: BEP), and Enbridge (NYSE: ENB).
Plenty of gas to continue growing
Kinder Morgan currently yields over 5%. That's several times higher than the S&P 500's dividend yield of less than 1.5%. The primary reason is Kinder Morgan's dirt cheap valuation.
The natural gas pipeline giant expects to produce around $2.26 per share of distributable free cash flow this year. With its share price recently around $21.50 apiece, it trades at less than 10 times earnings. That's significantly cheaper than the S&P 500's 24.
Kinder Morgan might not stay that cheap for long if the Fed starts raising rates. However, that's not Kinder Morgan's only upside catalyst. The pipeline company retains about half its cash flow after paying dividends, which it uses to grow shareholder value by investing in high-return capital projects, repurchasing shares, and enhancing its financial flexibility. The company currently has about $5.2 billion of high-return capital projects under construction, half of which will come online by the end of next year. The growing cash flow from those capital projects will give it more fuel to increase its dividend, which it has done for seven straight years.
Powerful potential
Brookfield Renewable currently yields around 5%. The leading global renewable energy producer generates lots of stable cash flow to pay dividends. It produced $0.96 per share of funds from operations (FFO) during the first half of this year, about 75% of which it paid out in dividends. Annualize its FFO and Brookfield trades at 15 times earnings, given its recent share price at around $28.50.
The company is dirt cheap compared with the broader market and its growth potential. Brookfield Renewable expects several catalysts to grow its FFO per share by more than 10% annually through 2028. That should give it the power to increase its dividend by 5% to 9% annually. The company has grown its payout at a 6% compound annual rate over the past two decades.
Brookfield Renewable has significant long-term upside potential, given the accelerating demand for power, especially renewable energy. The world needs to deploy an unprecedented amount of electricity-generating capacity over the next 20 years to power electric vehicles, homes, businesses, and new technologies like AI. The market is severely underestimating this opportunity, which could power robust growth for Brookfield Renewable for decades to come.
The fuel to keep its streak alive
Enbridge currently yields more than 6.5%. The Canadian pipeline and utility company generates lots of stable cash flow to pay dividends. It expects to produce about $5.60 Canadian, or $4.15, of distributable cash flow per share this year at the mid-point of its outlook. With its share price right around $40, it trades at less than 10 times free cash flow.
The company pays out 60% to 70% of its stable cash flow in dividends. It retains the rest to fund expansion projects and maintain its financial flexibility. The company has a massive CA$24 billion ($17.8 billion) of capital projects currently under construction that should come online through 2028. Those projects include additional oil storage and export capacity, natural gas pipelines, gas utility expansions, and renewable-energy projects.
Enbridge expects a combination of expansion projects, cost savings and optimizations, and acquisitions to fuel 3% annual cash flow per share growth through 2026 and 5% per year after that. That should give the company the fuel to continue increasing its dividend by as much as 5% annually. It's managed to raise its payout for 29 straight years.
Bargain buys this September
Because Kinder Morgan, Brookfield Renewable, and Enbridge trade at dirt cheap valuations, they offer high dividend yields and upside potential. They could easily generate double-digit total annual returns from here. That compelling combination makes them look like screaming buys this September.
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, Enbridge, and Kinder Morgan. The Motley Fool has positions in and recommends Brookfield Renewable, Enbridge, and Kinder Morgan. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
